New Ironwood adds on swap; Avid ‘comes in’ a bit; Proofpoint launches $150 million deal

By Rebecca Melvin

New York, June 10 – Ironwood Pharmaceuticals Inc.’s new 2.25% convertibles traded up on swap Wednesday after the Cambridge, Mass.-based pharmaceutical company priced $300 million of the seven-year senior notes at the rich end and through the rich end of talk, a New York-based trader said.

The new Ironwood bonds were seen trading at 101.25 last with the stock up 1.3%. That represented an expansion of about 0.75 point.

Earlier the new notes were quoted at 101 with the stock down a penny, and that represented a gain of about a point on swap, a trader said.

Avid Technology Inc.’s new 2% convertibles “came in a little bit,” a trader said at late morning, quoting the new notes at 100 to 100.625. Shares were down 15 cents, or 0.9%, at $16.10 at that point. The bonds earlier had been plus 0.25 point, the trader said.

Also in the primary market, Proofpoint Inc. launched an offering of $150 million of five-year convertible bonds after the market close Wednesday that were expected to price after the market close Thursday. The convertibles were talked to yield 0.75% to 1.25% with an initial conversion premium of 30% to 35%.

Proofpoint has an existing $201.25 million issue of 1.25% convertibles, which priced in 2013.

Overall convertibles were a bit firmer on Wednesday as bond markets, which were weak on Tuesday, were buoyed somewhat by a rally in the equity markets.

“Convertibles were definitely weak on Tuesday, and we expected credit to continue to be weaker today, but once again the equity market is bailing out the bond markets, offsetting weakening in Treasuries,” a New York-based trader said.

Even high-yield debt, which had been weak for the last seven to 10 days, firmed up.

A trader said it was rare for high yield to lag for that long of a period. Normally, it snaps back after three or four days, he said.

On Wednesday, improving risk appetite that was created by better shares was helping the overall bond market, including high yield, he said.

“It’s still pretty choppy, and liquidity is pretty bad,” but it firmed up some, the trader said.

Weighing on bond markets are concerns about the Greek debt situation and a shift in expectations for a U.S. rate hike later this year and even as soon as September has caused deterioration in Treasuries, or a “back up” in rates.

After the market close, Standard & Poor’s lowered its long-term sovereign credit rating on Greece to CCC from CCC+, saying the government is likely to default on its commercial debt in the next 12 months without a new agreement with creditors.

The agency also said that the outlook on Greece is negative, and it left the country’s short-term rating unchanged.

Meanwhile in the convertible space itself, “valuations are not exactly cheap, and people are taking opportunities to reduce risk and pocket some profits when possible,” the trader said.

New Ironwood edges up

Ironwood’s 2.25% convertibles due 2022 traded up to about 101 early Wednesday after the $300 million issue priced at the rich end and through the rich end of talked terms.

Shares of the Burlington, Mass.-based digital media company were little changed at that point, and the dollar-neutral expansion was equal to about 1 point.

At the end of the session, the new bonds were quoted at 101 and the underlying shares were up 16 cents, or 1.3%, at $12.44. That was a gain of about 0.75 point dollar neutral, a trader said.

Ironwood and Wednesday’s other new deal from Avid Technology put in so-so debuts.

“This one is still OK,” a trader said of Ironwood. But they weren’t as strong as FireEye Inc.’s two $460 million deals, which debuted in the market May 27, or the ON Semiconductor Corp. $600 million of 5.5-year convertibles that priced June 2, the trader said.

Milpitas, Calif.-based FireEye is a network security company. Its bonds were quoted at 110 at the end of the session.

Phoenix-based ON Semi makes and sells semiconductors for electronic devices.

“Those were solid opportunities to add some income and profit to the till,” the trader said of the convertibles of the two western U.S.-based companies.

“These were not quite as hot,” the trader said, referring to the deals priced late Tuesday by two eastern U.S.-based companies.

J.P. Morgan Securities LLC and Credit Suisse Securities (USA) LLC were joint bookrunners of the Ironwood deal, which priced through the rich end of 2.5% to 3% coupon talk and at the rich end of 30% to 35% premium.

There is an over-allotment option for $45 million of additional notes.

The notes are non-callable, with no puts. They have takeover and dividend protection, as well as net share settlement and contingent conversion if shares exceed a certain threshold over the conversion price.

In connection with the pricing of the notes, Ironwood entered into convertible note hedge and warrant transactions with certain initial purchasers of the bonds, or a call spread, which boosts the initial conversion premium from the issuer’s perspective to 75%.

Proceeds from the notes will be used to fund general corporate purposes, which may include repayment or redemption of all or a portion of its outstanding debt, the acquisition of or investment in strategic assets, and to pay the cost of the call spread.

Cambridge, Mass.-based Ironwood is a pharmaceutical company with treatments for gastrointestinal illnesses.

The deal was seen 2.5 points cheap at pricing of 2.75% coupon, 32.5% premium, using a credit spread of 650 basis points over Libor and a 40% vol.

New Avid ‘comes in’ a little

Avid Technology’s 2% convertibles due 2015 traded at about 100 bid, 100.625 offered near midday, and that level was said to represent “a little bit” of a contraction compared to an earlier 0.25 point expansion on swap.

Shares of the Burlington, Mass.-based digital media company were down about 25 cents, or 1.5%, to $16.00.

“They are not exactly rockin’ and rollin,’” a New York-based trader said.

The valuations of both Avid and Ironwood were reasonably close, however, the trader said.

But Ironwood was a bigger issue and was able to garner more participation. In order for a deal to have wide play, it has to be at least $250 million to $300 million in size.

Avid was a $125 million deal.

Pricing of the notes came at the midpoint of talk, which was for a 1.75% to 2.25% coupon and 32.5% to 37.5% premium.

Using a credit spread of 500 bps over Libor and a 37% vol., the new Avid convertibles modeled 101.66 fair value at the midpoint.

There is a $15 million greenshoe, which was not upsized. Jefferies & Co. was the bookrunner of the deal, with Houlihan Lokey acting as co-manager.

The notes are non-callable with no puts and have takeover and dividend protection.

In connection with the pricing of the notes, Avid entered into convertible note hedge and warrant transactions, or a capped call, with an affiliate of one of the initial purchasers of the notes. The cap price is $26.00 per share, which represents an initial conversion premium of 60% from the issuer’s perspective.

Proceeds from the notes will be used to fund its acquisition of Orad Hi-Tec Systems Ltd. and to pay the cost of the capped call.

Avid also plans to use remaining proceeds to pay for potential share repurchases, to use up to $18.4 million to repay borrowings under its senior secured revolving credit facilities with Wells Fargo Capital Finance LLC, and for working capital and general corporate purposes.

Burlington, Mass.-based Avid is a digital video and audio production technology, management and distribution company.

Proofpoint bringing deal

Proofpoint, a Sunnyvale, Calif.-based security-as-a-service vendor, plans to price $150 million of five-year convertible bonds that are talked to yield 0.75% to 1.25% with an initial conversion premium of 30% to 35%, according to market sources.

The Rule 144A offering has a $22.5 million greenshoe and was being sold via joint bookrunners Credit Suisse Securities (USA) LLC and Citigroup Global Markets Inc.

The notes will be non-callable until June 20, 2018 and then provisionally callable if shares rise to 130% of the conversion price for a specified period. There is dividend and takeover protection via standard conversion rate adjustments.

Proceeds are expected to be used for general corporate purposes, including potential acquisitions and strategic transactions.

Mentioned in this article:

Avid Technology Inc. Nasdaq: AVID

FireEye Inc. Nasdaq: FEYE

Ironwood Pharmaceuticals Inc. Nasdaq: IRWD

ON Semiconductor Corp. NYSE: ON

Proofpoint Inc. Nasdaq: PFPT

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