Blucora edges higher in the gray; volatility drops; Salesforce, Iconix, Meadowbrook on tap

By Rebecca Melvin

New York, March 11 - Blucora Inc. launched $150 million of convertibles into the bond market early Monday, and the deal was heard at 101 bid, 102 offered in the gray market ahead of final terms seen being fixed after the market close, sources said.

The deal from Blucora, a small, $600 million market cap company, was oversubscribed but still of limited interest to investors, market players said.

Elsewhere, the secondary market was notably quiet as volatility came in with equities extending gains again.

The CBOE Volatility index, or VIX, was down at near six-year lows during much of the session and then dipped lower into the close to end at 11.56, which was down 12% on the day.

The Dow Jones industrial average gained 50.22 points, or 0.4%, to 14,447.29, four its fifth straight record high; the Standard & Poor's 500 index rose 5.04 points, or 0.3%, to 1,556.22, and the Nasdaq Stock Market added 8.5 points, or 0.3%, to 3,252.87.

Despite stock gains of 4.5% and 5.9% for MGIC Investment Corp. and Radian Group Inc., respectively, the newer convertibles of those companies were quiet, sources said.

"It was relatively quiet in the mortgage insurer space," a New York-based convertibles analyst said. "Despite a 4.5% stock rally, the new MGIC 2% converts were down about 0.25 point dollar neutral on the day."

MGIC Investment's 2% convertibles due 2020 were at 101 midsession, which was up nearly 1.5 points outright on the day.

In general the flows were light during the session, the analyst said. And a New York-based trader noted that "yields are creeping higher and traders have to keep an eye on that."

But after the market close, three new deals launched. Salesforce.com launched a $1 billion offering of five-year convertible bonds that were talked to yield 0% to 0.25% with an initial conversion premium of 47% to 52%.

Salesforce's existing convertibles were not seen in trade Monday and went out at 219 bid, 220 offered versus the underlying share price of $185.94, a New York-based sellsider said.

Iconix Brand Group Inc. launched $325 million of five-year convertible senior notes that were talked to yield 1.25% to 1.75% with an initial conversion premium of 27.5% to 32.5%.

Iconix' 2.5% convertibles due 2016 were also not seen in trade, and the bonds were called 108.5 bid, 109.5 offered versus an underlying share price of $23.50 at the close.

Meadowbrook Insurance Group Inc. launched a $75 million offering of seven-year convertible senior notes that was talked to yield 4.5% to 5% with an initial conversion premium of 37.5% to 42.5%.

All three of the new deals were seen pricing after the market close on Tuesday.

Blucora up slightly in gray

Blucora, a Bellevue, Wash.-based online search and tax preparation business, was called 101 bid, 102 offered in the gray market, which was a little below where the paper was modeling in terms of fair value.

One source said that he was showing the new paper less than 2% cheap using the underwriters' assumptions, which was for a credit spread of 650 basis points over Libor and a 35% volatility.

A second source using a tighter spread of 575 bps over Libor and a 32% vol. saw the paper with a fair value of 104.

The first source said that even at the tighter spread, the paper modeled 2% cheap.

Despite the reasonable valuation and a stock borrow availability that was described as good, the deal wasn't attracting an overabundance of interest from hedged players. Nevertheless the deal was heard to be oversubscribed.

"I didn't have anyone that cared," a New York-based trader said, though he didn't doubt that the deal would do fine. "[Investors] have to buy any new paper just because everything else is overvalued," he said.

The $150 million of six-year convertible senior notes were seen pricing after the market close Monday via joint bookrunners BofA Merrill Lynch and Jefferies & Co.

There is a $22.5 million greenshoe for the Rule 144A offering.

The notes are non-callable for three years with no puts. There is takeover and full dividend protection, and there is net share settlement pending shareholder approval.

Proceeds will be used for working capital and general corporate purposes, including acquisitions.

Recently Blucora reported its fourth-quarter profit fell 83% but was better than estimates as higher input costs offset revenue growth and the year-earlier period was enhanced by a tax benefit.

For the most recent quarter, Blucora posted a profit of $3.8 million, or 4 cents a share, down from $22.9 million, or 57 cents a share, a year earlier. Excluding one-time items, the company posted per share income of 24 cents, up from 17 cents. Revenue rose 46% to $97.5 million.

The company in November forecast adjusted earnings of 18 cents from 21 cents a share on revenue of $92 million. Search revenue was up 45% to $96.3 million, while tax-preparation revenue was $1.2 million. Input costs, including amortization costs, rose 57%.

Blucora monetizes online search through its InfoSpace business and recently acquired TaxACT, an online tax preparation provider.

Salesforce plans $1 billion

Salesforce is making a private offering of $1 billion of five-year convertibles via joint bookrunners Morgan Stanley & Co. LLC and BofA Merrill Lynch. There is a $150 million over-allotment option.

Salesforce's existing 0.75% convertibles due 2015 traded unchanged at 119 bid, 120 offered versus the close for shares of the San Francisco-based developer of cloud computing applications for businesses.

The planned bonds are non-callable. Upon conversion the notes will be settled in cash and shares of Salesforce.com common stock.

Proceeds will be used for general corporate purposes, including acquisitions and investments in complementary businesses, working capital and capital expenditures as well as to pay the cost of convertible note hedge transactions.

Iconix to price

Iconix, a New York-based consumer brands marketing company, planned to price more than $300 million of five-year convertibles via bookrunner Barclays. The Rule 144A deal has a $50 million greenshoe,

The bonds are non-callable with no puts. There is contingent conversion if shares rise to 130% of the conversion price.

Proceeds are earmarked to fund the repurchase of up to $75 million of common stock concurrently with the offering and to fund the cost of a call spread aimed at reducing potential dilution upon conversion and for general corporate purposes, including acquisitions and share repurchase programs.

Since Jan. 1, Iconix has repurchased about 2.6 million shares of common stock for about $62 million in aggregate.

Meadowbrook Insurance on tap

Meadowbrook Insurance, a Southfield, Mich.-based insurance holding company, planned to price $75 million plus an $11.25 million greenshoe in a Rule 144A deal being sold via bookrunner J.P. Morgan Securities LLC.

The notes are non-callable for seven years with no puts. There is takeover protection.

Proceeds will be used for general corporate purposes, including repayment of debt and to purchase a call spread to mitigate potential dilution upon conversion of the bonds.

Mentioned in this article:

Blucora Inc. Nasdaq: BCOR

Iconix Brand Group Inc. Nasdaq: ICON

Meadowbrook Insurance Group Inc. NYSE: MIG

MGIC Investment Corp. NYSE: MTG

Radian Group Inc. NYSE: RDN

Salesforce.com NYSE: CRM

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