International Flavors hits market; DocuSign borrow ‘horrendous’; NXP busy; Acorda down

By Abigail W. Adams

Portland, Me., Sept. 13 – Thursday kicked off with $750 million in new paper entering the convertibles secondary space and the primary preparing to price $500 million more after the market close.

International Flavors & Fragrances Inc.’s $750 million offering of $50-par three-year tangible equity units were in demand during bookbuilding and in the secondary space with the notes trading up on both an outright and dollar-neutral basis.

While International Flavors’ new equity units occupied trading activity, market players continued to eye DocuSign, Inc.’s offering of five-year convertible notes, which is expected to price after the market close.

While the rate on the borrow for DocuSign’s common stock was called “horrendous,” the deal was in high demand during bookbuilding with the deal upsized to $500 million from $400 million.

Outside of International Flavors, the secondary space was quiet for a Thursday, a market source said. There were about $219 million bonds on the tape by late afternoon.

NXP Semiconductors NV’s 1% convertible notes due 2019 were the most actively traded bonds with the notes making gains alongside stock as the semiconductor sector rebounded.

Acorda Therapeutics Inc.’s 1.75% convertible notes due 2021 remained in focus with the notes continuing to decline on an outright and dollar-neutral basis after a delay in the review process for the company’s Parkinson’s drug.

International Flavors eyed

International Flavors priced $750 million of $50-par three-year tangible equity units after the market close on Wednesday at the rich end of talk with a coupon of 6% and an initial conversion premium of 22.5%.

Price talk had been 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 were in demand during bookbuilding with the offering said to be 3x oversubscribed. They were equally well received in the secondary space. The units were Thursday’s nom du jour with more than 11 million of the units traded, a market source said.

The units traded up to $51.75 early in the session and were expanded about 0.25 point to 0.5 point dollar-neutral.

They were seen at $52.50 later in the afternoon and were expanded about 0.75 point dollar-neutral.

The units priced concurrently with a common stock offering of $1.5 billion, which priced at $130.25 per share.

International Flavors stock closed Thursday at $137.23, an increase of 4.64%.

While there were trades on swap, the majority were outright buyers accumulating their positions, a market source said.

The strong performance of the units was no surprise given the demand for paper from investment-grade companies and for mandatories, sources said.

While still investment grade, International Flavors was downgraded by both Moody’s Investors Service and S&P Global Ratings on Thursday as a result of the company’s acquisition of Frutarom.

DocuSign borrow tight

DocuSign plans to price an upsized $500 million of five-year convertible notes after the market close on Thursday. While the rate of the borrow is astronomical, the deal was in high demand during bookbuilding, sources said.

The deal is expected to price after the market close with a coupon of 0.5% and an initial conversion premium of 30%, according to a market source.

Prior to the upsize, price talk had been tightened to a coupon of 0.625% to 0.75% and an initial conversion premium of 32.5%, according to a market source. The initial size of the deal was $400 million.

Price talk had initially been for a coupon of 0.5% to 1% and an initial conversion premium of 30% to 35%.

Underwriters are marketing the deal with a credit spread of 225 basis points over Libor and a 40% vol., which models 3 points to 3.5 points cheap, sources said.

However, the rate on the borrow skyrocketed on Thursday. With the new borrow rate factored in, the deal modeled slightly rich, a market source said.

While the borrow was tight when the deal was launched, it was “horrendous” on Thursday, another source said.

“Not in terms of the amount available, but in terms of the rates,” the source said. The rate on the borrow was as low as -10 but bounced back to stabilize at -6.

However, the deal is pricing concurrently with an 8.06 million share common stock offering, which will loosen up the borrow once the stock settles.

The deal is a good buying opportunity for outright accounts, and the company offers “the perfect storm” for hedge players with a great growth story for the company and great vol., a source said.

“This is a way to buy a growth story,” a market source said. The deal is appealing to growth and income oriented funds, the source said.

However, hedge players may have to pay a little bit before the rate on the borrow improves.

NXP active

While trading volume was light outside of International Flavors, NXP’s 1% convertible notes due 2019 were among the top volume movers for convertible bonds with more than $14 million on the tape by late afternoon.

The notes were up 2 points outright.

They were seen trading at 107 versus an equity price of $93.99 late in the afternoon.

NXP stock closed Thursday at $91.91, an increase of 3.5%.

NXP was “the posterchild” for the decline in the semiconductor sector in recent days and the equity was now rallying, a market source said.

Acorda’s decline continues

Acorda’s 1.75% convertible notes due 2021 continued to trade down on Thursday with more bad news facing the company.

The 1.75% notes were seen at 82.5 bid, 83.5 offered Thursday afternoon.

The notes were contracted about 0.5 point dollar-neutral and were down about 3.5 points dollar-neutral on the week, a market source said.

“That’s pretty commendable given the stock move,” a source said. With about $8 million bonds on the tape by the late afternoon, the 1.75% notes were the third most actively traded in the space.

The notes are now yielding about 8.677%, a source said.

Acorda stock was again down about 18% in intraday trading but rallied to close the day at $18.05, a decrease of 2.43%.

Stock has dropped about 34.5% since Monday when the company lost its battle to protect the patents on its Multiple Sclerosis drug.

Prior to Monday, the convertible notes were trading in the 97 range.

Acorda received more bad news on Thursday with the FDA delaying its review of Acorda’s experimental Parkinson’s drug Inbrija for three months.

The review is now expected to take place in January as opposed to October.

“They need this drug to be approved,” a market source said. However, the drug is an inhalant and inhalants have historically had a difficult time during the FDA approval process, the source said.

Mentioned in this article:

Acorda Therapeutics Inc. Nasdaq: ACOR

DocuSign, Inc. Nasdaq: DOCU

International Flavors & Fragrances Inc. NYSE: IFF

NXP Semiconductors NV Nasdaq: NXPI

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