Herbalife, Apptio bring $675 million of new paper to convertibles market; Alder drops

By Abigail W. Adams

Portland, Me., March 21 – Wednesday began with $675 million of new convertibles paper hitting the secondary market, and more new deals are expected to come with the Federal Reserve raising interest rates by 25 basis points to a range of 1.5% to 1.75%, the highest level since 2008.

Plug Power Inc. plans to price $100 million of five-year convertible notes after the market close Thursday with price talk for a coupon of 5% to 5.5% and an initial conversion premium of 20% to 25%, according to a market source.

Morgan Stanley & Co. LLC and Barclays are joint bookrunners for the Rule 144A deal, which carries a greenshoe of $15 million.

In connection with the pricing, Plug Power will enter into capped call transactions and prepaid forward stock purchase transactions.

Plug Power will purchase about $20 million of its common stock, based on the closing sale price of stock on the pricing date, at the notes’ maturity.

In an overnight deal, Herbalife Ltd. priced an upsized $550 million of six-year convertible notes with a coupon of 2.625% and an initial conversion premium of 30% prior to the market open on Wednesday.

Trading of the new 2.625% convertible notes due 2024 was mostly limited to the underwriters, market sources said.

“It was really a wall crossed deal with existing holders,” a market source said.

While Herbalife’s deal was more than four times the offering from Apptio Inc., new paper from Apptio outpaced Herbalife on the tape during Wednesday’s session.

Apptio priced $125 million of five-year convertible notes after the market close on Tuesday with a coupon of 0.875% and an initial conversion premium of 30%.

The new 0.875% notes due 2023 expanded 1 point on a dollar-neutral basis out of the gate and were the top volume mover on Wednesday, according to market sources.

The two new deals accounted for about $155 million of the total $540 million on the tape shortly before the market close.

After regaining their footing in early March and trading above par, Alder BioPharmaceuticals Inc.’s 2.5% convertible notes due 2025 took a hit during Wednesday’s session after the announced departure of CEO Randall Schatzman.

The 2.5% convertible notes sank to the 88 to 89 range on Wednesday – their lowest point since their market debut on Jan. 30.

Wall crossed deal

In what was described as “wall crossed deal,” Herbalife priced an upsized $550 million of six-year convertible notes prior to the market open on Wednesday.

Pricing came at the mid-point of talk for a coupon of 2.375% to 2.875% and an initial conversion premium of 27.5% to 32.5%, according to a market source. The initial size of the deal was $500 million.

The new 2.625% convertible notes due 2024 were seen trading at 101.5 to 102 early in the session with stock up about 3.5%. “They really haven’t expanded,” a market source said. “Stock is up handsomely.”

The 2.625% notes were seen trading at 100.625 versus an equity price of $98.65, an increase of 2.63%, shortly before the market close.

Proceeds from the offering will be used to repurchase a portion of the company’s outstanding 2% convertible notes due 2019 in privately negotiated transactions with a limited number of holders.

In connection with the repurchase of the 2% notes, holders are expected to close or reduce their short positions in Herbalife stock, which will take place in a separately agreed-to valuation period that is expected to begin the trading day following the pricing of the notes.

Herbalife will also terminate a portion of the capped call transactions entered into when the 2% convertible notes priced in 2014.

Herbalife’s 2% convertible notes due 2019 were also active on the tape during Wednesday’s session with $25 million traded shortly before the market close. The 2% notes were up almost 3 points on an outright basis. They were seen trading at 122.847 versus an equity price of $98.57.

Apptio expands

In a small offering, Apptio priced $125 million of five-year convertible notes after the market close on Tuesday with a coupon of 0.875% and an initial conversion premium of 30%.

Pricing came at the rich end of talk for a coupon of 0.875% to 1.375% and at the mid-point of talk for an initial conversion premium of 27.5% to 32.5%, according to a market source.

The new 0.875% notes due 2023 were the major volume mover during Wednesday’s session and expanded 1 point on a dollar-neutral basis out of the gate.

“Not much is active,” a market source said early in the session. “Most people are home on a snow day. [Apptio] is about the only thing that’s traded.”

Apptio accounted for $60 million of the $140 million on the tape early in the session and $84 million of the $540 million on the tape shortly before the market close. The new 0.875% notes were “pretty solid,” a market source said.

They were seen at 102 versus an equity price of $30.27 late in the afternoon.

Alder tanks

After regaining their footing in early March, Alder BioPharmaceuticals’ 2.5% convertible notes due 2025 dropped almost 10 points on an outright basis during Wednesday’s session.

The 2.5% notes were seen trading in the 88 to 89 range with stock down 15%.

Wednesday marked the lowest point for the struggling convertible notes since they hit the market on Jan. 30.

The 2.5% notes were contracted on their market debut and spent much of their existence below par in the 94 to 98 range. However, the 2.5% notes rebounded in March, trading as high as 101 as recently as March 13.

Alder BioPharmaceuticals announced after the market close Tuesday that CEO Randall Schatzman would leave his post effective immediately.

Board member Paul Cleveland will serve as interim president and chief executive officer until a permanent replacement is found, according to a company news release.

“Mr. Cleveland’s appointment follows the mutual determination by Randall C. Schatzman and the Board that now is the right time for Dr. Schatzman to step down as president, chief executive officer and as a director,” according to the news release.

Alder BioPharmaceuticals is on the verge of filing for U.S. Food and Drug Administration approval for its migraine medication eptinezumab.

Proceeds from the convertible note offering are being used to support its development and commercialization.

Alder BioPharmaceuticals stock closed Wednesday at $11.55, a decrease of 15.07%. Stock was $15.00 when the 2.5% convertible notes priced.

Mentioned in this article:

Alder BioPharmaceuticals Inc. Nasdaq: ALDR

Apptio Inc. Nasdaq: APTI

Herbalife Ltd. NYSE: HLF

Plug Power Inc. Nasdaq: PLUG

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