New Actavis adds on debut; American Tower adds in the gray; Huron, Chesapeake improve

By Rebecca Melvin

New York, Feb. 25 – Actavis plc’s upsized $4.6 billion of 5.5% mandatory convertible preferred stock traded well on Wednesday upon release for secondary market dealings, moving up to 102 in the early going with the underlying shares up 1%, according to market sources.

The Actavis mandatories remained at 102 when shares came off for just a 0.5% gain on the day.

The Actavis deal was a primary focus for the market given the size of the new deal.

Elsewhere, there was ongoing softness in convertible paper as market players sold issues to make room for the new Actavis deal and a second large mandatory convertible preferred from American Tower Corp. that was seen pricing after the market close.

The American Tower deal was seen trading up in the gray market ahead of final terms being set, at 101 to 101.25, a New York-based trader said.

“I heard it’s going to price at the rich end again,” the trader said, referring to the fact that Actavis came at the rich end of talk, which was tightened during marketing.

But despite an overall softer tone, the convertibles of two issuers improved on a dollar-neutral, or hedged, basis despite earnings setbacks.

Huron Consulting Group Inc.’s 1.25% convertibles were lower outright but expanded about 1 point to 1.25 points after the Chicago-based consulting company reported quarterly results that missed expectations on revenue. The company also guided revenue below consensus going forward.

The convertibles of Chesapeake Energy Corp. traded actively and held in after the Oklahoma City-based energy exploration and production company missed fourth-quarter earnings estimates and its shares sank 10%.

New Actavis trades well

Actavis’ newly priced 5.5% convertible mandatories traded up to 102 versus an underlying share price of $292.00 in the early going, a New York-based trader said. Later they were still 102 with share ending at $290.40.

“People made money; it was a good deal,” a New York-based trader said.

On an outright basis, they were definitely up, and they were up for a while,” the trader said.

Actavis priced $4.6 billion of the 5.5% series A mandatory convertible preferred stock, which was upsized from $4.2 billion.

The deal came at the rich end of terms that were tightened during marketing. They have a 22.5% initial conversion premium.

Actavis also sold a concurrent $3.8 billion of common stock, or some 13 million shares at $288.00 per share, which was downsized from $4.2 billion.

Proceeds from the two deals, together with additional debt financing, will be used to finance the cash consideration for its $66 billion acquisition of Allergan Inc.

Joint bookrunning managers were J.P. Morgan Securities LLC, Mizuho Securities, Wells Fargo Securities LLC, Morgan Stanley & Co. LLC, Barclays and Citigroup Global Markets Inc.

Actavis is a global specialty pharmaceutical company with headquarters in Parsippany, N.J.

Allergan is a health care company based in Irvine, Calif. The new company will be called Allergan.

Huron expands on earnings

Huron’s 1.25% convertibles were quoted at 106 bid, 106.75 offered versus a share price of $64.71.

That was down sharply on an outright basis from about 114. But it was up 1 point to 1.25 points on a dollar-neutral, or hedged, basis assuming a delta in the mid 60% range coming into the day, a New York-based trader said.

Huron shares closed down $9.61, or 13%, at $64.86.

The Chicago-based operational and financial consulting services company reported fourth-quarter earnings that were better-than-expected at $12.8 million, or 57 cents per share. Excluding items, the company earned 74 cents per share, which was better than 73 cents per share that analysts expected.

But revenue came in at $193.1 million, which was lower than the $211.3 million revenue reported in the fourth quarter last year, and it missed forecasts for revenue of $203.7 million.

Looking ahead, Huron expects full-year revenue of $880 million to $920 million, which is lower than analysts were expecting.

The company said its health care segment continued to have strong performance, but its legal segment had a difficult fourth quarter owing to a sudden downturn in business related to government investigations of the credit crisis.

Nevertheless, “the headline numbers were not that bad,” a New York-based trader said, suggesting that the stock move may have been overdone.

Also the convertibles did well because the lower price was viewed as an opportunity to get into the name, he said.

In addition a lot of par to 120 convertible paper had been experiencing robust demand. “It has been better to buy in the last several weeks,” the trader said.

Chesapeake holds in

There was outright demand for Chesapeake convertibles on Wednesday and they were “better to buy,” a New York-based trader said.

The Chesapeake’s 2.5% convertibles due 2037 were seen at 96.75 bid, 97.25 offered amid strong outright interest. That was about even with where the paper had been previously.

The Chesapeake 2.25% convertibles due 2038 were seen last “wrapped around 93, which was a little higher on the day.

Chesapeake’s 5.75% convertible preferreds were called 101.375 bid, 102.375 offered with the shares at $18.00.

The $1,000-par preferred stock was lower on an outright basis but better on a hedged basis, a market source said.

“We see significant progress in Chesapeake’s results, despite weaker commodity prices in Q4,” Gimme Credit analyst Philip Adams wrote in a note on Wednesday. “For all of 2014, FFO was $5.03 billion, up from $4.96 billion in 2013. Drilling and completion costs were $4.53, and capex for unproved property and other asset acquisitions were (only) $669 million, for total capex of $5.1 billion, well within guidance.”

“Comparable capex guidance for 2015 is $3.5 billion to $4 billion, reflecting the discipline to adapt to the weaker commodity environment,” Philips wrote.

Mentioned in this article:

Actavis plc NYSE: ACT

American Tower Corp. NYSE: AMT

Chesapeake Energy Corp. NYSE: CHK

Huron Consulting Group Inc. Nasdaq: HURN

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.