Morning Commentary: Clovis convertibles ‘well received,’ expand on market debut

By Abigail W. Adams

Portland, Me., April 17 – New paper from Clovis Oncology, Inc. hit a secondary market hungry for new paper on Tuesday and was performing well out of the gate, sources said.

Clovis priced an upsized $300 million offering of seven-year convertible notes after the market close on Monday to yield 1.25% with an initial conversion premium of 40%.

The deal came at the middle of price talk for a coupon of 1% to 1.5% and the rich end of talk for an initial conversion premium of 35% to 40%. The deal was upsized from $200 million.

The greenshoe was also upsized to $45 million from $30 million.

The new 1.25% convertible notes were seen expanded 1.25 points to 1.75 points dollar neutral early in the session, according to a market source.

The notes were trading up to 102 with stock up soon after the opening bell.

“It was well received,” a market source said. The concurrent $100 million stock offering of 1.84 million shares at $54.41 bolstered the convertible notes performance, the source said.

“With a stock deal, it’s usually pretty safe that the stock’s not going down,” the source said.

The convertible notes have a theoretical delta of 75% but will most likely trade with a 65% delta, a source said. “It’s a longer bond; people will probably play it wider,” the source said.

While Clovis’ new paper was in focus, trading volume remained light in the secondary space. However, the tone of the market is good.

With credit spreads tightening, there is money in the convertibles space chasing yields, yet prices are holding firm, a market source said.

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