Cadence $350 million convertible talked at 0%, up 17-22%

Nashville, Aug. 11 - Cadence Design Systems Inc. launched $350 million of 20-year convertible notes talked to yield 0% with a 17% to 22% initial conversion premium, via bookrunner JPMorgan.

The Rule 144A deal, being sold on call spread, was pricing after the market close Monday.

The notes will have a 145% contingent conversion trigger. The issue will be non-callable for five years with puts in years five, 10 and 15.

Sellside analysts put the issue from 2.45% cheap to 2.41% rich at the middle of price talk.

Buyside traders reported no gray market activity on the issue, but the stock was higher on very heavy volume. Cadence shares closed up 19c, or 1.44%, to $13.38 with 9.71 million shares trading, versus the running average of 1.76 million shares.

Merrill Lynch & Co. analysts put the deal 2.5% cheap, at the midpoint of guidance, using a credit spread of 420 basis points over Treasuries and a 38% stock volatility.

Deutsche Bank Securities inc. analysts put it 2.41% rich, using a spread of 450 bps over Libor and 35% volatility.

Lehman Brothers analysts put it 0.79% rich, using a spread of 400 bps over Treasuries and 35% volatility.

There is a $50 million greenshoe available.

Cadence intends to use up to $100 million of proceeds to buyback common stock concurrently with, and possibly after, pricing of the notes.

Also, the company plans to enter into a convertible bond hedge transaction to limit potential dilution from conversion of the notes. Cadence also intends to enter into a call option transaction. The company said about $63 million of proceeds will be used in these two transactions.

Remaining proceeds will be used for general corporate purposes.

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