Affymetrix to price $105 million convertibles; Royal Gold extends gains; InterDigital adds

By Rebecca Melvin

New York, June 18 - The convertible bond market was mostly quiet on Monday the day after the much anticipated Greek elections, which brought a fairly muted market reaction despite what many players were expecting.

The election results quelled immediate concerns about Greece being on a path to leave the single-currency euro zone.

"At this point, it feels like its biding time, and people are starting to evaluate what's next on the horizon on the macro front," a New York-based convertibles analyst said.

In the primary market, Affymetrix Inc. launched a $105 million, registered offering of seven-year senior convertible notes that were talked to yield 3.25% to 3.75% with an initial conversion premium of 27.5% to 32.5%.

Those notes were expected to price after the market close on Tuesday.

In the convertibles secondary market there was continued action in Royal Gold Inc., which priced $325 million 2.875% convertibles that debuted in the secondary market Friday. Those bonds improved on a dollar-neutral basis by about 0.375 point on Monday.

There was also some action in another recent new issue: Medicis Pharmaceuticals Corp.'s $500 million of 1.375% convertibles, which were priced in early May, were little changed at 98.375 in trading on Monday.

InterDigital Inc.'s convertibles were also trading and about 3 points higher outright after news that the wireless chip technology company sold patents to Intel Corp. for $375 million. But the paper, which had been held on a 45% to 50% delta, may not have improved on a dollar-neutral basis.

Euro woes

Spanish and Italian bond yields widened on Monday, with Spain hitting the unofficial danger zone of 7%, the analyst said.

"I don't think anything is very clear. The immediate threat has dissipated, but that doesn't mean there won't be another threat in a couple of weeks," a New York-based analyst said.

The European governments are now seeking to make headway on their banking systems and fiscal integration, and in the U.S., it looks like focus is shifting toward Fed policy.

A two-day Federal Reserve Open Market Committee meeting is set to begin Tuesday, and markets are eyeing potential Fed intervention like an extension of Operation Twist, which is the name given to the Fed's monetary policy operation in which it buys or sell bonds of long or short duration depending on its objectives.

News that the conservative New Democracy party came first in Greek's critical election and pro-bailout parties won enough seats to form a joint government didn't do much for equity markets either. Although the tech-heavy Nasdaq Stock market gained almost 1%.

In convertibles there wasn't much volume and market players weren't making any significant moves, sources said.

"It doesn't feel like anyone is doing much. Nothing really happened and people anticipated that more would happen," a source said.

"At the end of the day it kind of feels like which countries are going to be left holding the euro, the weaker countries or the stronger countries," the source said.

Affymetrix to price

Affymetrix launched $105 million of seven-year senior convertible notes after the market close Monday that were expected to price after the market close Tuesday.

At the midpoint of talk, which was for a 3.25% to 3.75% yield and 27.5% to 32.5% premium, the paper looked nearly 2.5 points cheap using a credit spread of 900 basis points over Libor and 40% vol., according to a West Coast-based trader.

"This is tricky, a $105 million deal for a $380 million market cap. This is going to take some work," the trader said.

The registered Affymetrix offering has a $10 million greenshoe and is being sold via Citigroup Global Markets Inc. and Morgan Stanley & Co. LLC.

The notes will be non-callable for five years and provisionally callable thereafter at a price hurdle of 130%.

Proceeds are expected to be used to fund a portion of the purchase price for its pending acquisition of eBioscience Holding Co. Inc.

Affymetrix is a Santa Clara, Calif.-based provider of technology used by pharmaceutical, diagnostic and biotechnology companies, as well as by academic, government and nonprofit research organizations.

eBioscience is a San Diego, Calif.-based immunology and oncology research and diagnostics company.

Royal Gold extends gains

Royal Gold's new 2.875% convertibles due 2019 traded at 104.628 on Monday, which was up outright by more than 1.5 points from 103 bid, 103.25 offered on Friday. The notes were up 0.375 point on a dollar-neutral basis.

Shares of the Denver-based precious metals royalties acquisitions and management company gained $2.00, or 2.6%, to $79.49The underlying shares were lower by around 0.5% during the session.

The bond was still viewed as cheap, but not as cheap Friday as on Thursday before price talk was tightened to 2.75% to 3% for the coupon and 35% for the initial conversion premium from 3.125% to 3.625% coupon and 30% to 35% premium.

The registered, off-the-shelf offering was sold via bookrunner Goldman Sachs & Co. and lead managers HSBC Securities (USA) Inc. and Scotia Capital (USA) Inc.

The notes will be convertible beginning on March 15, 2019 or earlier upon the occurrence of certain events.

The securities are non-callable until June 15, 2015 and then are provisionally callable subject to a price hurdle of 130%.

Medicis in trade

Medicis' 1.75% convertibles due 2017 traded at 98.375, which was essentially unchanged versus previous levels, a market source said.

Medicis shares closed up 38 cents, or 1.1, to $34.43.

There was no obvious reason behind Monday's trades in this name, a source said.

InterDigital gains outright

InterDigital's 2.5% convertibles due 2016 traded frequently between 96 and 97.5 on Monday, according to Trace data, which was up about three points outright.

Shares of the King of Prussian, Pa.-based company surged $6.20, or 27%, to $29.08 in ultra-heavy volume.

The bonds were held on a 45% to 50% delta, or slightly lower delta, a market source said.

On that kind of a delta, the name was probably being held on a partial credit hedge, the source said.

InterDigital sold about 1,700 patents to Intel for $375 million. The transaction involves patents for wireless information transfer. InterDigital also said that it will double its existing share repurchase program to $200 million.

Last year, InterDigital hired advisors to explore a possible sale of itself.

Mentioned in this article:

Affymetrix Inc. Nasdaq: AFFX

InterDigital Inc. Nasdaq: IDCC

Medicis Pharmaceuticals Corp. NYSE: MRX

Royal Gold Inc. Nasdaq: RGLD

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