Exelon makes strong debut; upsized j2 Global, Ariad tread water after early weakness

By Rebecca Melvin

New York, June 12 – A fresh batch of new issues in the U.S. convertibles secondary market on Thursday slipped below par in the early going with the exception of Exelon Corp.’s new 6.5% equity units, which were seen at 51.25 to 51.5 with the underlying shares of the Chicago-based utility down about 2%, market sources said.

Later the Exelon mandatories were seen at 52 with the underlying shares at $35.30, which was down about 1%.

j2 Global Inc.’s newly priced 3.25% convertibles due 2029 traded down to 99.5 with the underlying shares at $47.45, a Connecticut-based trader said. Later they were at 101 with shares up 1% at $38.31.

Ariad Pharmaceuticals Inc.’s newly priced 3.625% convertibles were seen as low as 98.375 bid and as high as 100.5 offered. One trader quoted a market at 98.375 bid, 99.375 offered at late morning. A second trader said the new notes were trading at 99.5 bid, 100 offered with the underlying shares of the Cambridge, Mass.-based oncology company down 5%. The shares ended down nearly 9%.

TCP Capital Corp.’s newly priced 5.25% convertibles due 2019 were not actively traded, a syndicate source said. A second market source said the new TCP paper was being offered below par.

Colony Financial Inc.’s new add-on to its 3.875% convertibles due 2021 pulled that issue into trade, and those bonds changed hands at 101.25. Colony priced $100 million more of the 3.875% convertible senior notes due 2021, raising the deal size to $330 million.

Thursday brought $1.65 billion of new paper to the convertibles market, continuing a trend for the last two weeks in which new issuance has been strong.

“We have an open trading window right here in the quarter,” a New York-based syndicate source said, referring to the timeframe before company quiet periods begin.

A second market source said that the second quarter historically brings the most convertible new issuance volume.

The amount of new paper has caused the first weakening in the secondary market in some time, and while pricing of new deals has continued to be strong to date, the effect of weakness in the secondary will be seen in the primary, a syndicate source said.

Established issues were described as quiet. In the broader markets, equities slid lower through the session, unnerved by headlines of escalating violence in Iraq where insurgents had taken over several northern cities and edged toward Baghdad. In addition, economic data was tepid. Retail sales for May increased 0.3% from the previous month, which was below expectations for a 0.7% rise. Meanwhile, initial claims for jobless benefits edged up 4,000 to 317,000 in the last week, which was more than expected.

New Exelon strengthens

Exelon’s newly priced 6.5% equity units were seen at 52 near the end of the session. The 2-point gain was achieved against weaker shares and when translated to the standard 100 par market, represented a strong 4-point gain.

Earlier the new Exelon units traded at 51.25 bid, 51.50 offered with the underlying shares at $35.00.

Exelon priced $1 billion of the units at the tight end and beyond the tight end of talk together with a secondary offering of common stock.

The common stock came at a slight discount to the market close Wednesday when the deals were priced. The new shares were priced at $35.00, and the market close on the common was $37.75.

The convertible deal’s positive reception in the market “was not a big surprise,” a New York-based trader said.

“It’s a utility mandatory, and buyers are income funds that don’t care about the bulk of the convertible market,” the trader said. “And this company doesn’t have an existing deal.”

“What this tells you is that there are certain types of things that people want,” the trader said, referring to the strong Exelon deal as well as the more lackluster debuts of the day’s other new deals.

Pricing of the registered, off-the-shelf convertible deal came beyond the tight end of talk for the distribution rate, which was 6.75% to 7.25%, and at the tight end of 20% to 25% premium talk.

Exelon also priced 50 million shares of its common stock at $35.00 per share. In connection with the equity offering, Exelon entered into forward sale agreements for the same number of shares with a strike price of $33.95 per share.

Proceeds of both offerings will be used to finance a portion of the Pepco Holdings Inc. acquisition announced April 30 and for general corporate purposes.

There is a greenshoe for up to $150 million of additional equity units for the units deal, which was sold via bookrunners Barclays, Goldman Sachs & Co., Citigroup Global Markets Inc. and Wells Fargo Securities LLC.

The units are mandatorily convertible June 1, 2017.

Exelon is a Chicago-based electric and gas utility

Upsized j2 treads water

j2 Global’s new 3.25% convertibles were quoted at 99.5 bid, 100 offered in the early going with the underlying shares little changed after the Los Angeles-based internet services provider priced an upsized $350 million of 15-year convertible senior notes at the midpoint of talk.

The new paper priced with a 45% initial conversion premium.

The registered deal was initially talked at $300 million in size. The notes are non-callable until June 20, 2021, with puts in years 2021 and 2024.

Proceeds are intended for general corporate purposes, which may include acquisitions or payment of notes.

Upsized Ariad slips

Ariad’s newly priced 3.625% convertibles were seen slightly below par with the underlying shares down 5%. The shares closed down 61 cents, or nearly 9%, at $6.41.

Ariad priced the upsized $200 million of five-year convertible senior notes in an overnight deal.

The notes have an initial conversion premium of 32.5%.

The offering was initially talked at $175 million, and pricing came toward the cheap end of 3.25% to 3.75% coupon talk and at the midpoint of 30% to 35% premium talk.

The notes are non-callable and came with a call spread that boosts the effective premium from the issuer’s perspective to 71%.

Proceeds will be used to pay the cost of the call spread and also for operations, including but not limited to sales, marketing, manufacturing and distribution of ponatinib, global development of its other product candidates, including clinical trials, product and process development, manufacturing and other activities, discovery research efforts to add to its pipeline of product candidates and other general corporate purposes.

Cambridge, Mass.-based Ariad is an oncology company with treatments for cancers, including leukemia and lung cancer.

TCP Capital offered below par

TCP Capital’s 5.25% convertibles were said to be quiet and also to have been offered below par as shares trended toward unchanged on the session.

The Santa Monica, Calif. -based specialty finance company priced $100 million of the 5.5-year convertible senior notes after the market close Wednesday with a 12.5% premium.

The deal was not upsized and came at the cheap end of talk.

The notes are non-callable.

Proceeds are to be used to repay amounts outstanding under the company’s revolving credit facilities and to make investments in portfolio companies and for other general corporate purposes, including payment of operating expenses.

Mentioned in this article:

Ariad Pharmaceuticals Inc. Nasdaq: ARIA

Colony Financial Inc. Nasdaq: CLNY

Exelon Corp. NYSE: EXC

J2 Global Inc. Nasdaq: JCOM

TCP Capital Corp. Nasdaq: TCPC

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