Morning Commentary: Market eyes Perficient, Retrophin; Restoration Hardware in focus

By Abigail W. Adams

Portland, Me., Sept. 5 – The convertibles primary market hopped back into action in the return from the Labor Day weekend starting off what sources expect to be a high-volume month for new deal activity with two new offerings.

Retrophin, Inc. plans to price $200 million of seven-year convertible notes after the market close on Wednesday with price talk for a coupon of 2.25% to 2.75% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

Using a credit spread of 400 basis points over Libor and a 38% vol., sources pegged the deal between 1.75 points to 2.26 points cheap at the midpoint of talk. Using a credit spread of 450 bps over Libor and a 40% vol., the deal modeled about 1.76 points cheap, a market source said.

A portion of the proceeds from the new offering will be used to repurchase a portion of the biopharmaceutical company’s 4.5% convertible notes due 2019.

Perficient Inc. plans to price $125 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 1.875% to 2.375% and an initial conversion premium of 25% to 30%, according to a market source.

Using a credit spread of 150 bps over Libor and a 18% vol., the deal models out to 99.91 at the midpoint of talk, a market source said. However, the deal models about 1 point cheap using a credit spread of 150 bps over Libor and a 20% vol.

Using a credit spread of 250 bps over Libor and a 22% vol., the deal models about 0.25 point cheap, a market source said.

Perficient has a revolving loan facility with an interest rate of 150 bps over Libor, which the company has drawn $56 million from, a market source said. Proceeds will be used to repay those borrowings. The deal looks attractive and is expected to do well, a source said.

As market players eyed the new deals in the pipeline, Restoration Hardware Inc.’s 0% convertible notes due 2023 were in focus in the secondary space and dropping on an outright basis alongside stock.

The 0% notes were down about 3.5 points outright to trade in the 96 area, a market source said.

With more than $7 million of the bonds on the tape early in the session, the notes were the volume leaders.

Restoration Hardware’s stock was down more than 9% to $137.29 early in the session. Restoration Hardware’s stock was taking a hit despite reporting a second-quarter earnings beat after the market close on Tuesday.

While Restoration Hardware beat analyst expectations with earnings per share of $2.49, versus expectations for earnings per share of $1.75, the home furnishings retailer stock dropped on a sales miss.

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