Morning Commentary: Insulet launches $660 million seven-year convertibles; valuation eyed

By Rebecca Melvin

New York, Sept. 3 – The convertibles market reconvened early Tuesday around a new deal by Insulet Corp.

Tuesday is the first trading day of the week after U.S. financial markets were closed on Monday in observance of the Labor Day holiday.

Insulet plans to price $660 million of seven-year convertible notes to yield 0.375% to 0.875% with an initial conversion premium of 30% to 35%, according to a market source.

A New York-based market source suggested valuation of the deal should be calculated using a credit spread of 400 basis points over Libor.

A second source said a credit spread of 300 bps over Libor and 35% vol. would make the deal worth 101.76 at the midpoint of talk, or 0.625% and 32.5%.

The proceeds of the new issue are earmarked to fund repurchases of the company’s existing 1.25% convertibles, which are due in 2021 and callable in September subject to a 130% price hurdle. Those notes, of which $345 million are outstanding, have an initial conversion price of $58.37. Insulet’s shares were last $157.74, which was up $3.57, or 2.3%, on the day.

“The [300 bps over Libor] credit assumption is tight for a company not making money,” the New York-based source said.

Insulet is a Billerica, Mass-based medical device company that is a leader in tubeless insulin pump technology.

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