Imperial gains in modest trade; planned Akamai sees par bid; Medicines expands on hedge

By Rebecca Melvin

New York, Feb. 13 - Imperial Holdings Inc.'s newly priced 8.5% convertibles gained in modest volume upon release in secondary market action on Thursday after the Boca Raton, Fla.-based specialty finance company priced $70 million of the five-year convertibles at the rich end of price talk.

The new Imperial bonds opened up at 104 bid, 107 offered and gained from there to 105.5 bid, 108.5 offered, a syndicate source said. They were better on both an outright and a hedged basis, although the bonds were not trading on a hedged basis for the most part, the syndicate source said. Shares rose nearly 3% in early action and were up 7.6% later.

Market players were sizing up Akamai Technologies Inc.'s $500 million deal of five-year convertible senior notes, which were expected to price after the market close. An early issue bid was seen in the new paper, a New York-based trader said.

A second trader said that he saw the planned Akamai worth par at the midpoint of talk, using a credit spread of 175 basis points over Libor and a 33% vol.

Elsewhere, trading was subdued in the early going, market sources said. The session was accompanied by a major storm that pounded the U.S. East Coast with heavy snow, ice and a wintery mix, which was cited for thinning the ranks of market participants.

The Medicines Co.'s 1.375% convertibles due 2017 extended losses on an outright basis but expanded on a dollar-neutral basis following word that a regulatory panel ruled against the company's Cangrelor blood clot prevention drug. That news precipitated share downgrades by Jefferies and Credit Suisse.

Earnings reports spurred some trade. General Cable Corp.'s 4.5% convertibles due 2029 traded up 3.55 points to 109.125, according to Trace data, after the Highland Heights, Ky.-based diversified industrial company reported earnings and revenue that beat estimates and shares jumped.

Prospect News could not determine how the General Cable paper traded on a dollar-neutral basis.

Goldcorp Inc.'s convertibles, which mature Aug. 1, 2014, were essentially unchanged after the Vancouver, B.C.-based mining company reported earnings that missed estimates, but shares were up.

Goldcorp's 2% convertibles due 2014 traded at 100.4, after being wrapped around 100.5, according to Trace data.

Also in trade were AMAG Pharmaceuticals Inc.'s new 2.5% convertibles, which debuted in the convertibles market on Wednesday and which regained about 0.7 point to 103.412, according to Trace data, with shares up more than 1%.

The Waltham, Mass.-based specialty pharmaceutical company priced an upsized $175 million of five-year notes at mixed terms.

Also of note was Universal Corp.'s 6.75% convertible preferred, which was unchanged on the day but seeing interest from both outright and swap players, a New York-based trader said.

The preferred goes ex dividend soon, and on a delta of about 70%, holders break even to the provisional strike, which is attractive, the trader said.

The Universal preferred was unchanged at $1,265.00 while the Universal common shares were off fractionally during the session and ended down 4 cents at $55.92.

Equities shook off early weakness, leaving the indices up between 0.4% and 0.9%, while U.S. Treasuries rose after weak data.

U.S. retail sales fell unexpectedly in January by 0.4%, and U.S. initial jobless claims rose to a seasonally adjusted 339,000. The weak data reinvigorated speculation that the U.S. Federal Reserve may slow its tapering schedule of bond purchases in an effort to keep wind in the sails of the U.S. economy.

New Imperial rises

Imperial's newly priced 8.5% convertibles opened up at 104 bid, 107 offered and gained from there to 105.5 bid, 108.5 offered, a syndicate source said.

Shares of the Boca Raton, Fla.-based specialty finance company were higher by 16 cents, or nearly 3%, to $5.56 in the early going when the bonds traded. The Imperial shares ended up 41 cents, of 7.6%, at $5.81.

The bid-ask spread was pretty wide, reflecting low liquidity in the deal, which was too small to interest many hedged players. Allocations were mostly to existing shareholders.

"It was tightly held," the syndicate source said.

It didn't "set up great on a hedged basis" due to limited borrow and light daily trading volume, but it is a company with "an interesting fundamental story and the book reflected that," the syndicate source said.

It traded well, and added on an outright and hedged basis, he said.

Imperial Holdings is the only publicly traded company in the life settlement space, a niche business that involves the transfer of unwanted life insurance policies to Imperial Holdings, which then pays the premiums and receives death benefits of those other than the original policy holders.

"They have a solid equity base and needed capital to grow their business," the syndicate source said.

Imperial Holdings sold $70 million of five-year convertible senior notes after the market close on Wednesday to yield 8.5% with an initial conversion premium of 25%. FBR Capital Markets & Co. was the bookrunner of the Rule 144A deal, which has a greenshoe for up to an additional $14 million of notes.

The notes are non-callable until Feb. 15, 2017 and then are provisionally callable if the share price exceeds 130% of the conversion price.

Proceeds are earmarked for investments in the life settlement asset class, including by lending against portfolios of life insurance policies and by strategically acquiring life insurance policies in the secondary and tertiary markets. Imperial may also use a portion of the proceeds to pay premiums on life insurance policies that it owns and for general corporate purposes, including working capital.

Medicines expands on hedge

The Medicines 1.375% convertibles due 2017 fell to 121.924 versus an underlying share price of $28.27 around midday Thursday. That was lower outright but better on a dollar-neutral basis by about 0.5 point, a New York-based trader said.

Medicines shares fell sharply but pared some losses to end down $3.82, or 12%, to $29.28.

The move extended an outright slide early in the week when the Medicines convertibles were quoted down about 6 points at 131.5 bid, 132.5 offered versus an underlying share price of $32.00 on Monday.

At that time, the convertibles fell in line or were up a small amount when shares of the Parsippany, N.J.-based pharmaceutical company plunged 11% early in the day but ended the session down 5%, or $1.80, at $32.42.

The week's moves were related to questions over whether the company's Cangrelor blood clot prevention drug will be approved. Late Wednesday the company announced that the FDA's Cardiovascular and Renal Drugs Advisory Committee voted 7-2 against approving the drug for patients undergoing cardiac stent procedures.

The panel's decision is not binding on the FDA, which is due to make a final decision on approval April 30.

On the heels of the panel rejection, Jefferies downgraded the Medicines stock to "hold" from "buy" and removed Cangrelor from consideration in its analyses of the company, saying there is a low probability of approval by the April 30 deadline. Credit Suisse downgraded the shares to "neutral" from "outperform."

Mentioned in this article:

Akamai Technologies Inc. Nasdaq: AKAM

AMAG Pharmaceuticals Inc. Nasdaq: AMAG

General Cable Corp. NYSE: BGC

Goldcorp Inc. NYSE: GG

Imperial Holdings Inc. NYSE: IFT

Medicines Co. Nasdaq: MDCO

Universal Corp. NYSE: UVV

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