Morning Commentary: Convertibles primary market prices $765 million in four deals; secondary quiet

By Abigail W. Adams

Portland, Me., April 19 – After a lull in activity, the convertible bond primary market priced $765 million over four deals, which hit the market on Thursday with mixed results.

Paratek Pharmaceuticals Inc. and Ship Finance International Ltd. priced overnight deals prior to the market open on Thursday.

Deutsche Bank AG, London Branch and South Jersey Industries, Inc. priced after the market close on Wednesday.

Despite the influx of new paper, the secondary market was quiet early in Thursday’s session with about $100 million on the tape, a market source said.

Paratek quiet

In an overnight deal, Paratek Pharmaceuticals priced an upsized $140 million of six-year convertible notes at par prior to the market open on Thursday with a coupon of 4.75% and an initial conversion premium of 20%.

Pricing came in line with talk for a fixed coupon of 4.75% and an initial conversion premium of 20%, according to a market source.

The new paper was not seen in the secondary market early in the session, sources said.

“I don’t see any of the brokers making a market in it,” a market source said.

Ship deal ‘sloppy’

Ship Finance priced $150 million of five-year convertible notes prior to the market open on Thursday at the cheap end of talk with a coupon of 4.875% and an initial conversion premium of 27.5%.

Price talk had been for a coupon of 4.375% to 4.875% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The 4.875% notes due 2023 were seen contracted about 1.5 points dollar neutral, a market source said.

The notes were trading “all over the place,” in a range of 97.5 to par, a source said. The notes were largely wrapped around 98.75 with stock down 5.89%.

The deal “was a little sloppy,” a market source said. “It didn’t really model out and it’s not the most liquid stock.”

In connection with the convertible note offering, Ship Finance entered into share lending agreements with the underwriters for up to 7 million shares of common stock.

The notes had a theoretical delta of 75% but will most likely move on a 70% delta, a market source said.

With $20 million on the tape, the new paper was the major volume mover early in Thursday’s session.

However, the deal was “small and clubby,” a market source said, and was not expected to see sustained trading activity.

Deutsche downsizes

Deutsche Bank priced a downsized $225 million of five-year cash-settled equity-linked notes tied to JPMorgan Chase & Co. with a 1% coupon and a 16% initial conversion premium after the market close on Wednesday, according to a news release.

The issue price was 103, lower than the previously announced issue price of 105.

The amount was reduced from the originally announced $250 million, the coupon matched the fixed 1% talk and the threshold premium was at the rich end of talk for 13% to 16%.

The new 1% cash-settled notes were seen trading at 103 although few bonds were on the tape. “It looks like that one got bagged away,” a market source said.

The initial price will be the volume weighted average price of JPMorgan stock on the day after pricing. JPMorgan stock was up to $110.65, an increase of 1.22%, early in Thursday’s session.

South Jersey trades up

South Jersey Industries’ priced $250 million, or 5 million units, of three-year mandatorily convertible $50-par equity units to yield 7.25% with a 20% initial conversion premium after the market close Wednesday.

The deal came at the middle of talk for a yield of 7% to 7.5% and a conversion premium of 17.5% to 22.5%.

The notes were trading up 1 point early in the session, a market source said. The concurrent stock offering made the deal more attractive, the source said.

Concurrently with the mandatory convertible equity units, South Jersey Industries priced $325 million shares, or 11,016,949 shares of common stock, at $29.50 each. Of the total, 6,779,661 shares are subject to a forward sale agreement.

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