Federal Realty exchangeable notes in focus, expand on debut; Cytokinetics trades lower

By Abigail W. Adams

Portland, Me., Jan. 9 – The convertibles secondary space was active on Tuesday as the first new paper of the week made its aftermarket debut.

Federal Realty OP LP priced an upsized $425 million of five-year notes exchangeable for Federal Realty Investment Trust’s stock (expected Baa1/BBB+) after the market close on Monday.

While the deal did not scream cheap, it played to strong demand and was putting in a solid performance in the aftermarket on Tuesday.

The new paper hit the secondary space on a red open for equity markets with indexes giving back some of their strong gains from the previous session.

However, indexes pared their losses to turn mixed by the close with the Dow Jones industrial average closing Tuesday down 158 points, or 0.42%, the S&P 500 index closing down 0.15%, the Nasdaq Composite index closing up 0.09% and the Russell 2000 index closing down 1.05%.

There was $525 million in reported volume in the late afternoon with Federal Realty’s new paper dominating activity in the secondary space.

Cytokinetics Inc.’s 3.5% convertible notes due 2027 also continued to see heavy volume with the notes falling alongside stock as doubts grew about Novartis’ anticipated buyout offer.

Federal Realty expands

Federal Realty priced an upsized $425 million, from $400 million, of five-year exchangeable notes after the market close on Monday at par with a coupon of 3.25% and an initial exchange premium of 20%.

Pricing came at the rich end of price talk for a coupon of 3.25% to 3.75% and at the cheap end of talk for an initial exchange premium of 20% to 25%.

The deal did not scream cheap, sources said.

However, it played to strong demand with the offering well oversubscribed and the notes putting in a solid performance on their aftermarket debut.

“There’s still a need for IG,” a source said.

The notes were wrapped around 100.375 early in the session with stock off slightly.

They were changing hands at 100.625 versus a stock price of $101.96 in the late afternoon.

The notes expanded about 0.25 point to 0.375 point on a dollar-neutral, or hedged, basis, a source said.

There was $115 million in reported volume.

Federal Realty’s stock traded to a low of $101.23 and a high of $102.47 before closing at $102.40, up 0.068%.

Cytokinetics active

Cytokinetics’ 3.5% convertible notes due 2027 continued to see heavy volume on Tuesday with the notes coming in alongside stock as market doubts surfaced about Novartis’ rumored takeover bid for the company.

The 3.5% convertible notes tumbled 14 points with stock off more than 11% in intraday trading.

The notes were trading at 206.875 versus a stock price of $99.67 in the late afternoon.

However, the notes pared their losses alongside stock into the close.

There was $34 million in reported volume.

Cytokinetics’ stock traded to a low of $95.51 and a high of $108.61 before closing at $101.97, off 5.64%.

Stock gave back some gains after surging 15% the previous session following a Wall Street Journal report that Novartis was in late-stage acquisition talks for the company.

Doubts surfaced following some comments from Novartis’ CEO on Tuesday about whether the takeout bid, which was anticipated before the close of the week, would transpire.

Cytokinetics’ stock and convertible notes have skyrocketed since the final trading days of December when the biotech released positive clinical results raising the company’s odds as a takeover candidate.

The 3.5% convertible notes gained more than 100 points outright with stock up almost 200% over the past two weeks.

While the convertible notes made strong gains on hedge initially, they have largely been moving in line dollar-neutral in recent trading sessions.

Mentioned in this article:

Cytokinetics Inc. Nasdaq: CYTK

Federal Realty Investment Trust NYSE: FRT

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