PrivateBancorp gains on strong demand; West Pharmaceutical quiet on debut; Amgen slips on new labels

By Kenneth Lim

Boston, March 9 - PrivateBancorp Inc. rose quickly on Friday as its new convertible caught the eyes of investors seeking a short-term piece of paper.

West Pharmaceutical Services Inc. was not actively traded on its secondary market debut, as critics described its deal as too expensive and hampered by an unfriendly structure.

Amgen Inc. slipped outright with its stock after the U.S. Food and Drug Administration slapped a strong black box warning on its anemia drug.

The rest of the convertible market was quiet on Friday.

"It's another slow Friday," a sellsider said. "The equity markets aren't going in any particular direction, there's nothing major going on. Even the new deals aren't doing much."

PrivateBancorp climbs on debut

PrivateBancorp's new 3.625% convertible senior note due 2027 rose more than a point outright on Friday as investors bid up the security for its short structure and cheap pricing.

The convertible was at 101.5 bid, 102.5 offered against the previous closing stock price of $35.33. The convertible was offered at par. PrivateBancorp stock (Nasdaq: PVTB) closed at $35.07, lower by 0.74% or 26 cents.

"They did very well," a buyside convertible trader said. "It's a very small deal, but they did very well. They were up about 1.5 points or so on a neutral basis...We didn't get involved, but I wish I had."

PrivateBancorp priced the upsized $100 million offering on Thursday after the market closed, at an initial conversion premium of 27.5%. The deal was talked at a coupon of 3.375% to 3.875% and an initial conversion premium of 22.5% to 27.5%.

The size of the deal was originally $70 million. The over-allotment option was increased to an additional $15 million, from an additional $10.5 million.

RBC Capital Markets was the bookrunner of the Rule 144A offering.

PrivateBancorp, a Chicago-based banking services company, said it will use the proceeds to pay back up to $41.5 million of existing senior debt, buy back up to $10 million of its common stock and for general purposes.

"It came pretty cheap where it priced," a sellside convertible analyst said. "If they had priced it at the rich end [of talk] it would have been rich, but I think they priced it right. Guys liked having all the puts also because it's less risky when you can put the paper back to the company after two years."

West Pharmaceutical makes quiet entry

West Pharmaceutical's new 3.5% convertible junior subordinated debenture due 2047 was not actively traded on the Street on Friday with the deal widely seen as expensive.

The $150 million deal priced convertible priced on Thursday after the market closed, with an initial conversion premium of 32.5%.

"We didn't see any trading at all," a sellside convertible trader said.

The convertible was offered at par. It was talked at a coupon of 3.5% to 4% and an initial conversion premium of 30% to 35%. West Pharmaceutical stock (NYSE: WST) closed at $42.29, down by 0.07% or 3 cents.

There is an over-allotment option for a further $22.5 million.

UBS Investment Bank was the bookrunner of the registered off-the-shelf offering.

West Pharmaceutical, a Lionville, Pa.-based maker of closure systems and syringe components for use with injectable drugs, said the proceeds of the deal will be used for general purposes.

"I think it was too rich for the kind of structure they were trying to have," the trader said. "You got a 40-year piece of paper with no puts, the coupon isn't that great."

A buyside convertible trader said the pricing was too aggressive.

"I don't know anybody who would have played that," the buysider said. "It won't pay in time and it's just not priced correctly. I don't really see any of it trading today."

The buysider noted that the structure of the deal was similar to Peabody Energy Corp.'s 4.75% convertible due 2066, but thought that Peabody's stronger credit made the structure for its deal easier to swallow.

"You can't make any money on these," the buysider said.

Amgen slips on drug label

Amgen retreated outright on Friday after the FDA required the company's anemia drug Aranesp to carry a "black box" warning.

Amgen's 0.125% convertible due 2011 fell about one point to trade at 95.5 against a stock price of $60.25. The 0.375% convertible due 2013 also lost a point to change hands at 95 versus a stock price of $62.125. Amgen stock (Nasdaq: AMGN) fell 2.11% or $1.31 to close at $60.86.

News of the black box warning requirement came after studies showed that patients taking the drug had a higher risk of death. The FDA decision also affects Johnson & Johnson's Procrit, which belongs to the same class of drugs. The FDA said the warning will urge doctors to use the lowest doses possible. Further changes to the drugs' labels could be made following a May meeting in which the FDA will hear from a panel of external experts.

"I can't imagine that anyone would be surprised by this," a sellside convertible analyst said. "The results of the trials were already announced months ago, and a number of equity analysts have already written about the possibility of a warning label."

The analyst said the news was not expected to affect Amgen's convertibles significantly.

"If you're hedged, this is the kind of volatility event you'd like to take advantage of," the analyst said. "The company's credit is still solid, so there's no concern there. If you're outright, you could actually see this as an opportunity. The stock's fallen so much since the phase 3 trial results came out, there's not a lot of downside left in the stock."

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