Alkermes plans exchange offer for convertibles, to sell up to $50 million new securities

By Peter Heap

New York, Nov. 6 - Alkermes, Inc. unveiled an exchange offer for its 3.75% convertible subordinated notes due Feb. 15, 2007 in which it will offer investors a smaller principal amount of new convertibles with a higher coupon and lower conversion price. The new bonds will also have a longer maturity and structural seniority.

The Cambridge, Mass. pharmaceutical company will also sell up to $50 million of the new convertibles to holders who participate in the exchange.

Alkermes said in a prospectus filed with the Securities and Exchange Commission that it considers the exchange "an important step in re-calibrating our capital structure to be better suited for the current market environment."

If fully subscribed, the exchange will eliminate $85 million principal amount of convertible notes, allow the company to convert virtually all its debt to equity if the stock rises approximately 75% above its current level and leave interest expense unchanged, the prospectus said. Alkermes will also raise $50 million of new capital.

For each $1,000 principal amount of the existing convertibles, Alkermes is offering $575 principal amount of new 6.52% convertible senior subordinated notes due December 2009, according to the prospectus.

The new securities will convert at a 17½% premium over the average stock closing price for the five trading days ending two trading days before the expiration of the offer.

Interest will be payable in cash or stock at the company's option. If paid in stock the shares will be valued at 90% of the average trading price over five days ending two trading days before the interest payment date.

Alkermes will be able to force conversion of the new notes if the stock trades at 150% of the conversion price for 20 out of 30 trading days.

If a forced conversion occurs before December 2004 holders will receive an additional two years of interest. Similarly if holders voluntarily convert before December 2004 they will receive an additional two years of interest.

The existing notes convert at $67.75 for a ratio of 14.76. The $200 million issue was sold at par in March 2000 with a 12% initial conversion premium.

Alkermes stock closed up 55c to $11.28 Wednesday.

Soft call protection runs through Feb. 19, 2003 with a 200% hurdle, or $135 per share. There is a hard call from Feb. 19, 2003 onwards.

The convert was quoted flat Wednesday at 51.375 bid, 52.375 asked.

If the exchange offer is fully subscribed, Alkermes will issue $115 million of the new 6.52% convertibles and sell a further $50 million.

Proceeds from the up to $50 million of new notes will be used for general corporate purposes, including research, development and clinical trials and for manufacturing facilities and equipment.

U.S. Bancorp Piper Jaffray is dealer manager for the exchange offer and placement agent for the new notes.

No expiration date has been fixed so far for the offer.

Alkermes develops products based on sophisticated drug delivery technologies via partnerships with several large pharmaceutical companies.

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