Convertibles mostly quiet post-break; Qihoo adds outright, on hedge; Cubist plans $600 million

By Rebecca Melvin

New York, Sept. 3 - The convertible bond market remained mostly quiet on Tuesday following the long holiday weekend in observance of Labor Day, market players said.

"It's very quiet post-Labor Day weekend," a New York-based sellsider said.

A second trader said it was "relatively quiet with people getting back from the holiday and mostly dealing with month-end issues."

Intel Corp.'s two convertible bond issues were atop the most actives list, and traded fairly actively but little changed, according to Trace data.

Intel's newer 3.25% convertible due 2039 was more actively traded than the older Intel 2.95% convertibles due 2035.

Another issue that was fairly active was Qihoo 360 Technology Co. Ltd.'s 2.5% convertibles, which priced last week. That paper was up about 2.5 points outright and up a point on a dollar neutral, or hedged, basis, with the underlying shares of the China PC and mobile internet security products provider up 4.7%, a New York-based trader said.

After the market close, Cubist Pharmaceuticals Inc. launched an offering of $600 million of convertible senior notes in five- and seven-year tranches. Pricing of the Lexington, Mass.-based biopharmaceutical company's 2018 and 2020 notes was expected to be fixed late Wednesday.

In Europe, Great Portland Estates plc launched and priced an offering of £150 million of five-year senior convertible bonds at the rich end of talk to yield 1% with a 35% initial conversion premium.

Between the new U.K. deal and trading action in Nokia Corp.'s 5% euro-denominated convertibles due 2017, it was a busy day in the European convertibles market, a London-based convertibles analyst said.

The Nokia convertibles traded up 33% on a 46% climb in the underlying shares, the analyst said.

The stocks and bonds of Nokia jumped on news that the Nokia's handset business is being bought by Microsoft Corp. for $7.2 billion.

Microsoft shares were down. But otherwise U.S. equities closed up modestly higher. In economic data, the U.S. manufacturing sector grew last month to 55.7 in August, its fastest pace in more than two years, according to the Institute for Supply Management, and beating estimates for a decline to about 53.

Construction spending gained 0.6% to an annual rate of $901 billion, according to the Commerce Department, topping expectations for a 0.3% gain.

Meanwhile, equities pared some of their early gains after key U.S. lawmakers including the top-ranking Republican in the House of Representatives, John Boehner, came out in support of president Barack Obama's call for military action against Syria.

Qihoo extends gains

Qihoo's 2.5% convertibles due 2018 traded up to 109.5 versus the underlying share price of $81.55 at the close.

Qihoo shares gained $3.62, or 4.7%, to $81.55.

That was a 2.5 point gain on an outright basis and it was up about a point higher on a hedged basis, a New York-based trader said.

There were a lot of outright buyers in the new Qihoo - which priced last week - and it was the only other thing that was relatively active, the trader said.

The Rule 144A and Regulation S offering priced last Wednesday with a 2.5% coupon and a 40% premium via joint bookrunners Citigroup Global Markets Inc., China Renaissance and UBS.

Cubist lines up two-parter

Cubist's $600 million in convertibles were expected to be priced in five-year and seven-year tranches, including $300 million talked to yield 1.625% to 2.125%, and $300 million talked to yield 2.125% to 2.625%.

Both tranches have an initial conversion premium of 27.5% to 32.5% and each tranche has a $50 million greenshoe.

The notes will be non-callable.

Joint bookrunners are Morgan Stanley & Co. Inc., Barclays, and RBC Capital Markets LLC.

In connection with the deal, the company plans to enter into convertible note hedge and warrant transactions with initial purchasers of the bonds.

Proceeds will be used primarily to fund its previously announced acquisition of Optimer Pharmaceuticals Inc. and to pay the cost of the convertible note hedge and warrant transactions. Remaining proceeds will be for general corporate purposes.

Cubits shares traded down, but then back to the unchanged mark in after-hours action after the convertibles deal was announced. The shares settled at $64.46, which was up $1.10, or 1.7%, on the day.

Mentioned in this article:

Cubist Pharmaceuticals Inc. Nasdaq: CBST

Great Portland Estates plc London: GPOR

Intel Corp. Nasdaq: INTC

Nokia Corp. NYSE: NOK

Qihoo 360 Technology Co. Ltd. NYSE: QIHU

© 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.