GDS hits the market; new issue volume to pick up next week; Red Hat active; Alder gains

By Abigail W. Adams

Portland, Me., May 31 – In what is expected to be the lone new deal of the week, GDS Holdings Ltd. priced $250 million of seven-year convertible notes prior to the market open on Thursday.

The new paper dominated trading activity in the secondary space, accounting for almost 20% of total trading volume by late afternoon.

The notes were seen up slightly on an outright and dollar-neutral basis.

After two weeks of heavy new deal volume, the primary market slowed its pace this past week.

New deal volume will remain slow for the remainder of the week but is expected to pick up next week, a market source said.

Meanwhile, the secondary space remained firm on Thursday, despite another down day for equities with the Dow Jones industrial average closing the day down 251 points.

“From where we were on Tuesday to where we are today, it’s definitely firmer,” the source said.

Red Hat Inc.’s 0.25% convertible notes due 2019 were major volume movers in the secondary space on Thursday, which sources attributed to holders taking money off the table.

DISH Network Corp.’s 3.375% convertible notes due 2026 were also active with the notes trading down alongside stock.

Alder BioPharmaceuticals Inc.’s 2.5% convertible notes due 2025 soared on Thursday, reaching their highest outright prices since the notes hit the market in January.

While not major volume movers, Intercept Pharmaceuticals Inc.’s 3.25% convertible notes due 2023 and Ascent Capital Group Inc.’s 4% convertible notes due 2020 were under watch as the companies’ equity tanked.

GDS dominates

Secondary trading activity on Thursday belonged to new convertible notes from GDS Holdings, the only new paper to hit the space this week.

GDS priced $250 million of seven-year convertible notes prior to the market open on Thursday at the midpoint of talk with a coupon of 2% and an initial conversion premium of 32.5%.

Price talk had been for a coupon of 1.75% to 2.25% and an initial conversion premium of 30% to 35%, according to a market source.

The 2% notes saw nearly $86 million bonds in play, accounting for nearly 20% of the $425 million in trading volume by dollar amount on the tape by late afternoon.

The notes were seen at 100.5 bid, 100.875 offered versus an equity price of $38.00 mid-afternoon, a market source said.

They were later seen trading at 100.5 versus an equity of $37.90.

The deal appeared to be put up on a 50% to 60% hedge, but few bonds were trading on swap early in the session, a market source said. The deal was sought after by outright accounts, another source said.

The 2% notes were expanded dollar neutral, a market source said.

GDS’ American Depositary Shares closed Thursday at $37.81, a decrease of 2.88%.

Cashing out on Red Hat

Red Hat’s 0.25% convertible notes due 2019 were also major volume movers during Thursday’s session, although trading paled in comparison to GDS’ new notes.

The 0.25% convertible notes were moving in lock-step with the common stock and were seen down about 2 points outright with the stock down about $1.

The notes were seen trading at 222.5 versus an equity price of $163.94 with about $25 million of the bonds traded by late afternoon, according to a market source.

The trading activity was motivated by sellers looking for a source of cash, a market source said.

Red Hat stock closed Thursday at $162.42, a decrease of 1.19%.

DISH active

DISH’s struggling 3.375% convertible notes due 2026 continued to trade down alongside stock in active trading on Thursday.

The notes were seen down 0.75 point outright to trade at 88.125 versus an equity price of $30.61.

DISH stock closed Thursday at $29.55, a decrease of 1.27%.

DISH’s convertible notes have been under pressure over the past month with the convertible notes seen down more than 2 points on a dollar-neutral basis since April.

Alder’s new heights

Alder’s 2.5% convertible notes due 2025 reached their highest outright prices on Thursday since they hit the market in January.

In a flurry of late day trades, Alder’s 2.5% convertible notes traded north of 110.5 as its stock jumped more than 5% for the second day in a row.

Alder stock closed Thursday at $17.45, an increase of 5.12%.

Alder stock was also up more than 5% at Wednesday’s close.

Much like Exact Sciences Corp.’s 1% convertible notes due 2025, which are also now trading at their highest levels since pricing, Alder’s 2.5% convertible notes have struggled since hitting the market.

The 2.5% notes were trading in the 88 to 89 range in late March after the sudden departure of former CEO Randall Schatzman.

However, the notes regained their footing throughout April and traded up to the 98 to 99 range.

The notes broke par last week and steadily climbed alongside the stock to close Wednesday at 106.88, according to Trace data.

There is speculation large-cap pharmaceutical companies Allergan and Biogen may potentially be interested in acquiring or partnering with Alder as Alder works to bring its migraine drug eptinezumab to the market.

Exact Sciences’ 1% convertible notes again reached a new height on Thursday after reaching a new high on Wednesday.

The 1% notes were seen trading at 107.5 versus an equity price of $59.97 late in the afternoon. Exact Sciences stock closed Thursday’s session at $59.54, an increase of 1.64%.

The 1% notes climbed about 7 points outright to trade as high as 105.75 during Wednesday’s session as stock skyrocketed.

Under watch

While not major volume movers during Thursday’s session, Intercept Pharmaceuticals’ and Ascent Capital Group’s convertible notes were under watch as both companies’ stock dropped during Thursday’s session.

Intercept Pharmaceuticals’ 3.25% convertible notes due 2023 were down 1.5 points outright to trade at 82 in scattered activity on Thursday, according to Trace data.

Intercept stock closed Thursday at $70.21, a decrease of 4.55%.

Intercept stock dropped on news competitor Madrigal Pharmaceuticals posted positive results in a clinical study for a medication to treat NASH.

Intercept has been the market leader in the development of a NASH treatment.

Ascent Capital Group’s 4% convertible notes due 2020 were quiet as the company’s stock dropped to a new 52-week low.

The 4% convertible notes were holding at their current level of 60 even as stock dropped more than 6%, a market source said.

Ascent Capital stock closed Thursday at $1.96, a decrease of 6.67%.

“The bonds are holding better than I thought they would,” a market source said. “They’ve barely moved.”

Ascent Capital’s stock was $79 when the convertible notes priced in 2013. While busted, the convertible notes have a yield of more than 30%, the source said.

Mentioned in this article:

Alder BioPharmaceuticals Inc. Nasdaq: ALDR

Ascent Capital Group Inc. Nasdaq: ASCMA

DISH Network Corp. Nasdaq: DISH

Exact Sciences Corp. Nasdaq: EXAS

GDS Holdings Ltd. Nasdaq: GDS

Intercept Pharmaceuticals Inc. Nasdaq: ICPT

Red Hat Inc. NYSE: RHT

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