Array adds a point in busy debut; market weaker; DDR off 0.25 point; Prologis in 0.5 point

By Rebecca Melvin

New York, June 5 - Array BioPharma Inc.'s newly priced 3% convertibles traded up on their debut in the secondary market on Wednesday after the Boulder, Colo.-based-biopharmaceutical company priced an upsized $115 million of the seven-year convertible senior notes at the rich end of talk.

The new Array bond traded up to 102 bid, 103 offered in the early going, a New York-based trader said. "People were bidding for it, but due to its smaller size, not everyone was trading it."

Later, the bond was "wrapped around par," with the stock down almost 4%, but it was still seen better on a dollar-neutral, or hedged, basis by about a point, a syndicate source said..

Otherwise the convertibles market was described as "melting down."

"All the names that got bid up in the last four to six months are slowly coming back in," a New York-based trader said.

A second trader said a segment of the market getting hit hard was the longer-dated paper, which is sensitive to higher interest rates.

Issues in the real estate investment trust space were also weak but not seen as getting hit any harder than anything else, a trader said.

DDR Corp.'s 1.75% convertibles due 2040, which priced in 2010, were lower outright and seen to have contracted 0.25 point on a dollar-neutral, or hedged, basis. Other REIT names were also weaker, including Boston Properties Inc. and Prologis Inc., and those issues were seen down 0.5 point on a dollar-neutral basis.

United States Steel Corp.'s 2.75% convertible notes due 2019, which priced March 20, were seen to have contracted 2 points on swap in the last week. They were seen at 102.5 bid, 103.5 offered versus an underlying stock price of $17.25 on Wednesday, a New York-based trader said.

"That one is affected by rates going up," the trader said.

Theravance Inc. 3% convertibles due 2015, which were called Tuesday, were active right around parity at about 129. Holders were not seen to have lost money on the redemption since the paper had been held as if it would be called. After the call, the San Francisco-based biopharmaceutical company will still have outstanding its 2.125% convertibles, which priced early this year.

Stocks pulled back amid mixed economic data and after Japan's Nikkei Stock Average fell 3.8% - its fifth 3%-plus decline in two week - after Japanese prime minister Shinzo Abe announced a growth strategy that disappointed investors.

The May jobs report of Automatic Data Processing and Moody's Analytics showed 135,000 new private sector jobs were created last month, which was below the 170,000 jobs economists' expected.

But the Institute for Supply Management's nonmanufacturing purchasing managers' index rose slightly more than expected to 53.7 for May. But the employment index in the report missed expectations, coming in a 50.1 compared with a forecast of 52.

The Dow Jones industrial average fell 216.95 points, or 1.4%, to 14,960.59; the S&P 500 stock index closed down 22.48 points, or 1.4%, to 1,608.90, and the Nasdaq stock market fell 43.78 points, or 1.3%, to 3,401.48.

New Array weighed by shares

Arry's new 3% convertibles due 2020 traded up to as high as 103.5 and were seen later at 101.5 before dropping to near par with the shares down to $5.14.

That was better on a dollar-neutral basis by 1 point to 1.5 points on about a 65% delta, a syndicate source said.

They were "wrapped around par with the stock at $5.14," the source said.

Shares of the Boulder, Colo.-based biopharmaceutical company were slightly lower early on and then fell sharply in early afternoon trading. They ended the day down 23 cents, or 4.3%, to $5.09.

The issue was actively traded and the busiest issue of the day, according to Trace data.

"It traded a good bit," the syndicate source said. "But it hasn't traded in a while."

The company priced an upsized $115 million deal at par after the market close Tuesday to yield 3% with an initial conversion premium of 32.5%.

Goldman Sachs & Co. and J.P. Morgan Securities LLC were joint bookrunning managers, and Piper Jaffray & Co. and Stifel, Nicolaus & Co. Inc. were the co-managers.

The registered, off-the-shelf offering was originally talked at $100 million in size. There is a $17.25 million greenshoe that was upsized from $15 million.

Pricing came on the rich end of talked terms, which were for a 3% to 3.5% coupon and a 27.5% to 32.5% premium.

The notes are non-callable until June 4, 2017 and then are provisionally callable if the stock price exceeds 130% of the conversion price, with a make-whole premium based on its fundamental change make-whole table. There are no puts.

There is also takeover protection and dividend protection is in the form of a conversion rate adjustment.

Proceeds will be used to repay its outstanding secured debt and for general corporate purposes.

The deal had been valued at more than 2% cheap at the midpoint of talk, using a credit spread of 800 basis points over Libor and a 40% vol.

DDR, REITs weaker

DDR's 1.75% convertibles due 2040 traded at 117.46, which was down about 1.6 points on an outright basis from about 119. But they were down on a hedged basis by only 0.25 point, according to a New York-based trader.

Shares of the Beachwood, Ohio-based shopping mall REIT were off 18 cents, or 1%, at $16.93 on Wednesday.

Prologis' 3.25% convertible senior notes due 2015 traded down 2.8 points outright to 114.7, according to Trace data. Compared to shares of the San Francisco-based REIT, which were down 56 cents, or 1.4%, at $38.86 on the day, the convertible paper was down, or "in," about 0.5 point on a hedged basis.

"The REITs aren't getting hit any harder than the rest of the market," a New York-based trader said.

Mentioned in this article:

Array BioPharma Inc. Nasdaq: ARRY

Boston Properties Inc. NYSE: BXP

DDR Corp. NYSE: DDR

Prologis Inc. NYSE: PLD

Theravance Inc. Nasdaq: THRX

United States Steel Corp. NYSE: X

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