Marriott Vacations adds on swap; Intercept drops about 9 points outright after FDA warning

By Rebecca Melvin

New York, Sept. 21 – The convertibles market was fairly quiet on Thursday with the newly priced Marriott Vacations Worldwide Corp. convertibles improving about 1.5 points on a dollar-neutral, or swap, basis after the Orlando-based vacation-ownership company priced $200 million of the five-year senior notes at the middle of price talk, a market source said.

The new Marriott Vacations 1.5% convertibles traded up to nearly 103 in the early going on Thursday, and the volume of those bonds changing hands dominated market action.

Otherwise the session was pretty quiet although there was decent volume by the end of the day.

“Not every market participant was in the office,” a second trader said. The Rosh Hashana holiday began Wednesday evening and concludes Friday evening.

Meanwhile Intercept Pharmaceuticals Inc.’s convertibles and shares tanked outright and contracted on a dollar-neutral, or hedged, basis after the U.S. Food and Drug Administration warned doctors to monitor patients taking Intercept’s liver disease drug Ocaliva.

The FDA said 19 patients had died after taking it. Although the cause of death wasn’t available for most of the patients, seven patients were taking the drug more frequently than recommended.

Intercept Pharmaceuticals’ 3.25% convertibles due 2023 fell to about 88 from 96.50 on Thursday, and shares of the New York based pharmaceutical company plunged $24.42, or 25%, to $73.70.

That was a contraction of about 2 points, a trader said, adding that market players were on various delta hedges so the amount of contraction varied.

Workday Inc.’s recently priced $1 billion of 0.25% convertible senior notes due 2022 remained active and were moving around a little bit with the shares but mostly hovering around par. The newer bonds, which priced Sept. 13, were seen at 99.5 bid, 100 offered.

Marriott adds on swap

Much of the volume in the convert space on Thursday was in Marriott Vacations, a trader said. Otherwise it was pretty quiet.

The new notes were seen at 102.7 at late morning, but shares of the company were also higher.

Shares closed up $2.34, or 4.7%, at $199.33.

The new convertibles due 2022 priced at par to yield 1.5% with an initial conversion premium of 30%.

That pricing was at the middle of talk for a 1.25% to 1.75% yield and 27.5% to 32.5% premium.

Marriott Vacations priced $200 million of senior notes with J.P. Morgan Securities LLC, BofA Merrill Lynch and SunTrust Robinson Humphrey Inc. acting as joint bookrunners.

There is a $30 million 13-day over-allotment option.

About $40 million of the deal’s proceeds will be used to repurchase common stock from purchasers of the new notes via privately negotiated transactions. Proceeds will also be used to fund the hedging transactions and for general corporate purposes, which may include debt repayment, acquisitions, working capital, inventory, share repurchases and capital expenditures.

Mentioned in this article:

Intercept Pharmaceuticals Inc. Nasdaq: ICPT

Marriott Vacations Worldwide Corp. NYSE: VAC

Workday Inc. NYSE: WDAY

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