Avadel eyes deal; Iconix convertibles eyed; Veeco, Vipshop, Weibo active on earnings

By Abigail W. Adams

Portland, Me., Feb. 13 –The primary market’s silence over the past week was broken on Tuesday with Avadel Pharmaceuticals plc planning to price $125 million of five-year convertible notes before the market open Wednesday.

Price talk is for a fixed coupon of 4.5% and an initial conversion premium of 20% to 25%, according to a market source.

Leerink Partners and SunTrust Robinson Humphrey Inc. are joint bookrunners for the Rule 144A deal, which carries an $18.75 million greenshoe.

Concurrently with the offering, the Dublin, Ireland-based specialty pharmaceutical company will repurchase up to $20 million of the company’s American Depositary Shares, according to a company news release.

In the secondary market, Iconix Brand Group Inc.’s 1.5% convertible notes due March 15, 2018 remained in focus on Tuesday after jumping more than 20 points on Monday due to an exchange agreement that alleviated concern about a potential default on the notes.

Despite S&P Global Markets lowering its corporate credit rating of Iconix to CC on Monday as a result of the exchange, the outstanding 1.5% notes continued to trade in the 95 to 98 range.

The move by S&P was called “astonishing” by one market source. The exchange is the reason default on the notes is unlikely, the source said.

On a relatively quiet day in the secondary market, Veeco Instruments Inc.’s 2.7% convertible notes due 2023, Vipshop Holdings Ltd.’s 1.5% convertible notes due 2019 and Weibo Corp.’s 1.25% convertible notes due 2022 were active after earnings reports.

Vipshop Holdings’ 1.5% convertible notes climbed about 3 points on an outright basis to the 110 to 111 range after reporting fourth-quarter earnings and setting high future guidance.

Weibo’s 1.25% convertible notes gained about 6 points to return to the 121 to 122 range, their previous level prior to the sell-off that sent equity markets into turmoil over the past few weeks.

Veeco’s 2.7% notes saw nominal improvement on an outright basis but remained in busted territory in the 90 to 91 range.

Iconix in focus

Iconix’s 1.5% convertible notes saw another day of active trades on Tuesday. The 1.5% notes remained in the 95 to 98 range after the New York-based owner, licenser and marketer of consumer brands announced an exchange agreement with holders of $110 million of the notes on Monday.

The exchange agreement eliminated fear the company would default on the 1.5% notes, which Iconix forecast as a possibility in late October.

The fear of a default sent the notes tumbling into the 75 to 80 range, which is where they remained until Monday. Iconix stock was down on Tuesday after surging more than 38% on Monday.

Iconix stock closed Tuesday at $1.56, a decrease of 9.83%. However, the conversion value of the outstanding 1.5% notes is “trivial” with maturity about one month away, a market source said.

The new 5.75% convertible notes due 2023 that Iconix will issue as part of the exchange carries an initial conversion premium of 17.5%.

The stock reference price will be determined over a five-day averaging period that began on Feb. 12, provided the price per share is no more than $1.656 or less than $0.844.

There is a 32.5% collar around the Feb. 9 closing price of $1.25.

S&P lowered Iconix’s corporate credit rating to CC from CCC- as a result of the exchange agreement.

“We view the transaction as a distressed exchange tantamount to a default upon completion because we believe the 2018 convertible notes holders will receive less value than originally promised,” S&P said in a news release.

The downgrade “seems perverse,” or at best “very late,” a market source said. The exchange agreement enables Iconix to access its second delayed-draw term loan, which it will use to retire the outstanding 1.5% notes.

Vipshop’s earnings

Vipshop’s 1.5% convertible notes due 2019 were among the most actively traded during Tuesday’s session after reporting fourth-quarter earnings after the market close Monday.

The convertible notes climbed more than 3 points on an outright basis to trade in the 110 to 111 range.

Vipshop’s ADS, which represent two ordinary shares of the company, closed Tuesday at $17.49, an increase of 6.71%.

The online discount retailer for brands in China reported a 27.1% year-over-year increase in revenue and earnings per ADS of 22 cents in the fourth quarter.

Vipshop expects 20% to 25% year-over-year net revenue growth in the first quarter of 2018.

Weibo returns

Weibo’s 1.25% convertible notes were also actively traded during Tuesday’s session with the notes climbing about 6 points on an outright basis to return to their pre sell-off levels.

The notes climbed steadily throughout Tuesday’s session to end the day just north of 122 after the Beijing-based social media company released fourth-quarter and year-end reports prior to the market open.

The 1.25% notes were solidified around 122 until the final days of January when the sell-off began and the notes dipped as low as 110.

The 1.25% notes rose Tuesday alongside Weibo’s ADS, which closed the session at $129.66, an increase of 9.59%.

Weibo’s fourth-quarter net revenue of $377.4 exceeded the company’s guidance. Earnings per share was 58 cents and non-GAAP earnings per share was 64 cents in the fourth quarter.

Net revenue for 2017 was $1.15 billion with an earnings per share of $1.56 and a non-GAAP earnings per share of $1.80.

Veeco active, but busted

Veeco’s 2.7% convertible notes due 2023 also saw some action on Tuesday after reporting fourth-quarter and year-end earnings after the market close on Monday.

The 2.7% notes traded up to 91 after closing Monday at 88, according to Trace data. The notes have largely traded in the 88 to 90 range for the past several months, except for a brief period in early December.

The notes sank to the low 80s in early December after the Fujian High Court in China issued a ruling on a patent infringement case against Veeco.

The ruling banned the company from selling, making or importing its EPIK 700 model MOCVD systems in China.

Veeco was simultaneously pursuing a patent infringement case against SGL Carbon, which involved Advanced Micro-Fabrication Equipment Inc., the company that filed suit in China.

The three companies announced on Feb. 8 that the pending patent litigation had been resolved and all legal action, including the decision of the Fujian High Court, would be either dismissed or withdrawn.

Veeco reported a sharp increase in revenue in the fourth quarter of $143.4 million and non-GAAP earnings per share of 19 cents, which beat consensus estimates of 9 cents to 10 cents a share.

Veeco reported annual revenue of $484.8 million in 2017 and non-GAAP earnings per share of 53 cents. Sales growth in the fourth quarter was largely due to shipment of Veeco’s MOCVD system, according to a company release.

Veeco stock skyrocketed on Tuesday in response to the earnings, closing the day at $17.20, an increase of 13.91%.

However, the rise in equity had little impact on Veeco’s convertible notes, which remain in busted territory.

Mentioned in this article:

Avadel Pharmaceuticals plc Nasdaq: AVDL

Iconix Brand Group Inc. Nasdaq: ICON

Veeco Instruments Inc. Nasdaq: VECO

Vipshop Holdings Ltd. NYSE: VIPS

Weibo Corp. Nasdaq: WB

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