Morning Commentary: Convertibles primary returns to action; Insmed, LCI, Dynavax on deck

By Abigail W. Adams

Portland, Me., May 10 – After a week-long hiatus, the convertibles primary market returned to action on Monday with three deals on deck.

LCI Industries plans to price $400 million of five-year convertible notes, Dynavax Technologies Corp. plans to sell $200 million of five-year convertible notes, and Insmed Inc. plans to price $500 million in seven-year convertible notes after the market close on Monday.

The new deal activity comes as the rotation into value stocks from growth stocks continued with the Nasdaq composite down 1.64% shortly before 11 a.m. ET while the Dow Jones industrial average again hit a new record and climbed 237 points, or 0.68%.

LCI notes on tap

LCI Industries plans to price $400 million of five-year convertible notes after the market close on Monday with price talk for a coupon of 0.75% to 1.25% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The deal was heard to be in the market with assumptions of 300 basis points over Libor and a 35% vol., according to a market source.

Using those assumptions, the deal looked 2.75 points cheap at the midpoint of talk.

Dynavax eyed

Dynavax Technologies plans to sell $200 million of five-year convertible notes after the market close on Monday with price talk for a coupon of 2% to 2.5% and an initial conversion premium of 30% to 35%, according to a market source.

While it was unclear what assumptions underwriters were using, one source pegged assumptions at 750 bps over Libor and a 45% vol.

Using those assumptions, the deal looked 3 points cheap at the midpoint of talk.

Insmed in focus

Insmed plans to bring $500 million of seven-year convertible notes after the market close on Monday with price talk for a coupon of 0.5% to 1% and an initial conversion premium of 25% to 30%, according to a market source.

While it was unclear what assumptions underwriters are using, one source pegged assumptions at 600 bps over Libor and a 45% vol.

Using those assumptions, the deal looked 0.42 point cheap at the midpoint of talk.

The 600 bps credit spread was aggressive for a biotech company, the source said.

However, Insmed does have cash on the balance sheet, is retiring some of its outstanding debt with proceeds from the new offering and is raising additional capital through an equity offering, the source said.

In a concurrent offering, the company plans to price $250 million of common stock.

Proceeds from the convertible notes offering will be used, in part, to repurchase a portion of the company’s 1.75% convertible notes due 2025 in privately negotiated transactions.

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