Viavi’s new deal does well on the break; Encore issue lackluster; HCI upsized; calendar eyed

By Stephanie N. Rotondo

Seattle, Feb. 28 – Tuesday kicked off with three new convertible bonds deals entering the market.

Viavi Solutions Inc. said it had sold $400 million of 1% convertible senior notes due 2024, with an initial conversion premium of 32.5%.

The terms came rich to the initial price talk of 0.5% to 1%, but cheap to the premium talk of 32.5% to 37.5%.

J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and Credit Suisse Securities (USA) LLC ran the books.

A trader said that issue made up the bulk of the day’s trading, with at least $78 million of the notes being exchanged.

“Many are 1 million [bonds or more], so probably $150 million or more in reality,” the trader noted.

He pegged the paper in a 100.75 to 101.25 context.

The underlying stock was also ticking up, adding 4 cents to close at $10.02.

Meanwhile, Encore Capital Group Inc. said it priced $150 million of 3.25% convertible senior notes due 2022, with an initial conversion premium of 30%.

The deal was increased from $125 million. Pricing came at the rich end of the 3.25% to 3.75% yield talk but cheap to the 30% to 35% premium talk.

BofA Merrill Lynch, Credit Suisse and Morgan Stanley were the bookrunners.

But while Viavi was doing well on the break, Encore was “not working out so well,” a trader said.

He saw the issue in a 98.25 to 98.75 range at mid-morning, adding that volume in the new deal was “sparse.”

“I guess they did a sloppy job putting it away,” the trader speculated.

Toward the end of the day, the issue was deemed “lower with the stock,” trading around 98.25 to 98.75.

The company’s shares meantime declined $1.75, or 4.99%, to $33.30.

HCI Group Inc. also came out with a deal on Tuesday, selling $125 million of 4.25% convertible senior notes due 2037, with an initial conversion premium of 25%.

The deal was upsized from $115 million.

A trader said the new issue moved up as high as 102 bid, 102.5 offered.

“Not much volume at all,” he said.

Earlier in the day, the notes were seen trading between par and 100.75, though like Encore, volume was limited when compared to Viavi.

HCI’s stock was initially lower but ended the session up 11 cents at $49.30.

Two other deals were expected to price after the market closed, though details were not available as of press time.

Silicon Laboratories Inc. announced on Monday a $350 million offering of five-year convertible senior notes, with a yield talked at 1.25% to 1.75% and an initial conversion premium of 32.5% to 37.5%.

Goldman Sachs & Co. LLC and Wells Fargo Securities LLC are leading the deal.

And, Square Inc. said it would price $350 million of convertible senior notes due 2022.

Price talk is for a yield of 0.375% to 0.875% and an initial conversion premium of 30% to 35%.

Goldman and JPMorgan are the bookrunners.

All of the new issues, including the ones that have yet to price, were done via Rule 144A offerings.

Priceline pops

Priceline Group Inc.’s 1% convertible notes due 2018 improved Tuesday after the company reported revenue that beat expectations and its equity hit new highs.

The convertibles were seen at 182.75 at one desk, up about 10 points. Another market source also saw the convertibles gaining about 10 points outright, closing just south of 183.5.

The equity jumped $92.12, or 5.64%, to $1,724.13.

For the fourth quarter, Priceline posted earnings of $710.85 million, up from $540.65 million the year before.

Earnings per share came to $14.21, up from $10.72 the previous year and better than the $13.01 analysts polled by Thomson Reuters had forecast.

Revenue increased 17.5% to $2.35 billion. Analysts had expected revenue of $2.32 billion.

The bottom line was boosted by “accelerating growth in room nights booked for the full year 2016 over 2015, which reflects the benefits of our scaled accommodations platform and strong execution by our global teams,” the company’s chief executive officer, Glenn Fogel, said in a statement.

Workday wanes

In other earnings news, Workday Inc.’s 0.75% convertible notes due 2018 weakened as new core customers added in the quarter disappointed investors.

Furthermore, the company said that it will no longer provide annual guidance on billings, opting instead to use operating cash flow as an indicator of performance.

A market source saw the convertibles with a 115 handle, which was called a 5-point outright decline. At another desk, the convertibles were pegged at 114.75, off over 5.5 points.

The company’s shares fell $7.26, or 8.05%, to $82.93.

On an adjusted basis, Workday posted earnings per share of 7 cents on revenue of $436.7 million.

Analysts polled by Thomson Reuters had forecast a loss of a penny on revenue of $430.3 million.

For the year, sales rose 35%, helped by a 39% gain in subscription revenue.

For the coming year, Workday said it is expecting to see revenue of $2.01 billion to $2.03 billion – better than analysts’ estimates of $1.99 billion.

Mentioned in this article:

Encore Capital Group Inc. Nasdaq: ECPG

HCI Group Inc. NYSE: HCI

Priceline Group Inc. Nasdaq: PCLN

Viavi Solutions Inc. Nasdaq: VIAV

Workday Inc. NYSE: WDAY

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