DocuSign on tap; market eyes International Flavors; Integrated Device Technology gains

By Abigail W. Adams

Portland, Me., Sept. 11 – The convertible primary market continued to roll out the deals on Tuesday with one more addition to the forward calendar.

DocuSign, Inc. plans to price $400 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 0.5% to 1% and an initial conversion premium of 30% to 35%, according to a market source.

Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC are joint bookrunners for the Rule 144A deal, which carries a greenshoe of $60 million.

Concurrently, selling stockholders are offering 8,060,550 shares of common stock in an underwritten public offering, which carries a greenshoe of 1,209,082 shares.

As part of a large capital raise, International Flavors & Fragrances Inc. is tapping the convertibles market with a $750 million offering of three-year $50-par tangible equity units.

Sources pegged the deal at fair value. However, the new mandatory paper is expected to be in demand given the amount that is leaving the space.

Meanwhile, there was an uptick in trading volume on Tuesday with more than $312 million on the tape by late afternoon.

Integrated Device Technology Inc.’s 0.875% convertible notes due 2022 dominated trading activity with the notes making gains on an outright and dollar-neutral basis after news broke that Renesas would buy the semiconductor company for $6.7 billion.

Acorda Therapeutics Inc.’s 1.75% convertible notes due 2021 were also active in the secondary space and losing ground on an outright and dollar-neutral basis after the biotech company’s efforts to protect its patents came to an unsuccessful end.

More mandies

It will be two days before International Flavors & Fragrances prices its $750 million three-year $50-par equity units. However, the deal is expected to be in demand.

The deal is set to price after the market close on Thursday with price talk for a coupon of 6% to 6.5% and an initial conversion premium of 17.5% to 22.5%, according to a market source.

The units will contain a prepaid stock purchase contract and a senior amortizing note due Sept. 15, 2021.

The deal is essentially a mandatory convertible and at “first blush” looks to be fair value, although mandatory convertibles typically come cheap, a market source said.

Other sources also pegged the deal at fair value. However, the new mandatory paper will be welcome in the space, especially given the amount that is maturing in 2018.

While a large offering, the new paper is “a drop in the bucket,” compared to what is leaving, a source said.

Assumptions are less relevant for mandatories. However, International Flavors & Fragrances is a large cap company and a strong credit, sources said.

The equity units are pricing concurrently with a $1.5 billion common stock offering. The concurrent offering is a pretty good indication the stock will not tank, especially given its size.

“They’ll defend it to its death,” a market source said.

Proceeds from the combined offerings, in addition to borrowings under new term loans and cash on hand, will be used to finance the company’s $7.1 billion acquisition of Frutarom Industries Ltd.

The buyout

Integrated Device Technology’s 0.875% convertible notes due 2022 dominated trading activity on Tuesday after news broke that Renesas would buy the semiconductor company for $6.7 billion.

The notes were making gains on an outright and dollar-neutral basis.

Sources pegged the 0.875% notes up 11 points to 12 points outright and expanded 0.5 point to 1.5 points dollar-neutral.

They were trading between 149.875 and 150.75 during Tuesday’s session. Stock closed Tuesday at $46.56, an increase of 10.65%.

The buyout was largely anticipated with the 0.875% convertible notes also making large gains on an outright and dollar-neutral basis at the end of August after news broke the companies were in negotiations.

The 0.875% notes expanded 2.5 points dollar-neutral with stock up more than 12% on Aug. 31 on the buyout news.

Depending on when the deal closes, bondholders stand to gain about 3 points dollar-neutral on the take out, a market source said. “It’s a 3-point win,” the source said.

Other sources pegged the notes as gaining about 2 points dollar-neutral if the deal closes in May.

Acorda contracts

Acorda Therapeutics’ 1.75% convertible notes were down on an outright and dollar-neutral basis on Tuesday as its efforts to protect its patent for its multiple sclerosis drug came to an unsuccessful end.

The 1.75% convertible notes traded down to 86 during Tuesday’s session.

They were seen contracted 1 point dollar-neutral after a 1.5 point dollar-neutral contraction on Monday, a market source said.

The notes were moving on a 30% delta.

Acorda stock closed Tuesday at $19.25, a decrease of 7.45%, after a more than 32% drop on Monday. The notes were trading in the 97 range last week.

While slow to trade on Monday, there was a flurry of activity surrounding the notes on Tuesday.

Those who bought the notes thinking the company would be able hold onto its patents were now selling them to “deep dive health care,” investors, a market source said.

Acorda lost its battle to protect its patents on its multiple sclerosis drug Ampyra on Monday.

While stock tanked as a result, the biotech company still has a market cap of about $1 billion and the patent on its Parkinson’s disease drug.

Current buyers of the convertible notes may believe the biotech company can rebound or may be an attractive acquisition given its Parkinson’s disease drug, a market source said.

Mentioned in this article:

Acorda Therapeutics Inc. Nasdaq: ACOR

DocuSign Inc. Nasdaq: DOCU

Integrated Device Technology Inc. Nasdaq: IDTI

International Flavors & Fragrances Inc. NYSE: IFF

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