Morning Commentary: Planned Isis looks slightly rich, shares jump; Ascent Capital shares drop

By Rebecca Melvin

New York, Nov. 11 – Isis Pharmaceuticals Inc.’s planned convertible deal for $425 million of seven-year notes looked a bit rich to one convertibles trader, who said early Tuesday that 0.5% to 1% coupon talk was pretty low for the Carlsbad, Calif.-based drug company that isn’t supposed to have positive EBITDA until late 2015.

Using a credit spread of 500 basis points over Libor and 40% vol., the deal was seen worth 99, according to the trader. The valuation includes talk for the initial conversion premium of 30% to 35%.

A second source said that 45% vol., which is what the underwriters went out with, was a more appropriate vol. for this deal.

A third trader said that market players were likely to be willing to use a tighter credit spread given that Isis has a market capitalization of $6 billion.

Isis shares rallied early Tuesday and were last up $4.63, or 10%, at $51.86.

The company said a good chunk of proceeds would be used to repurchase the existing 2.75% Isis convertibles, of which $200 million priced in August 2012. That issue was last seen around 270 in trade.

Elsewhere, Ascent Capital Group Inc.’s shares were getting crushed after the Greenwood Village, Colo.-based home security alarm company reported a third-quarter loss. The Ascent 4% convertibles due 2020 were not heard in trade.

Overall, trading was described as busier than expected for the Veterans Day holiday. But there was “orderly, good, two-way flow,” a New York-based trader said.

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