Air Transport’s new convertibles break above par; IAC/InterActive on deck; Red Hat firm

By Stephanie N. Rotondo

Seattle, Sept. 26 – Convertible bond players were shuffling around Air Transport Services Group Inc.’s new $225 million of 1.125% convertible notes due 2024 on Tuesday.

Toward the end of the day, a trader said the issue topped the day’s trading, holding around 103.

At mid-morning, a trader said the paper was trading all the way up to 103.25. Another market source saw the issue at 101.5.

As for the underlying stock, it was up 49 cents, or 2.07%, at $24.12.

The deal priced late Monday, coming upsized from an expected $200 million and with an initial conversion premium of 25%.

Initial price talk was for a 1.25% to 1.75% yield and a conversion premium of 32.5% to 37.5%.

Goldman Sachs & Co. and SunTrust Robinson Humphrey Inc. ran the books.

The initial conversion rate is 31.3475 shares per each $1,000 of notes, equal to an initial conversion price of $31.90 a share.

The notes are contingently convertible prior to April 15, 2024. After that, the issue is convertible at any time.

The company intends to use a portion of the proceeds to pay down its $545 million revolving credit facility.

Meanwhile, the market was also looking to see how IAC/InterActiveCorp.’s proposed $400 million offering of convertible notes due 2022 would price.

Price talk is for a yield of 1% to 1.5%, a market source reported early Tuesday. The initial conversion premium is expected to be between 27.5% and 32.5%.

The deal was announced after Monday’s close. Pricing was expected after Tuesday’s close, but details were not available as of 6:30 p.m. ET.

J.P. Morgan Securities LLC, Goldman Sachs, BMO Capital Markets, Guggenheim and BofA Merrill Lynch are the bookrunners.

Ahead of pricing, IAC/InterActiveCorp.’s shares were initially lower but closed up 16 cents at $114.85.

Red Hat rises

Red Hat Inc.’s 0.25% convertible notes due 2019 were boosted on Tuesday following the company’s earnings release late Monday.

A trader said the bonds were up 3 points, trading between 150 and 153.

He noted that most of the trades occurred between 151 and 152.

Another market source pegged the issue at 153 bid, 153.5 offered, which compared to 147.375 bid, 147.625 offered previously.

The company’s equity was also on the rise, adding $4.31, or 4.08%, to close at $110.07.

For its fiscal second quarter, Red Hat reported earnings per share of 77 cents on revenue of $723.4 million.

For its part, revenue was up 20.6% year over year.

Zacks Consensus Estimate had forecast EPS of 67 cents on revenue of $699 million.

Additionally, revenue came in above the company’s own projections of $695 million to $702 million.

Given the better-than-expected quarter, Red Hat’s management upped its third-quarter and full-year guidance.

For the current quarter, Red Hat expects to see EPS of 70 cents on revenue of $730 million to $737 million.

For the year, EPS is projected between $2.77 and $2.79 a share, up from previous guidance of $2.66 to $2.70 a share.

Revenue is forecast in a range of $2.88 billion to $2.9 billion, up from $2.79 billion to $2.83 billion.

Intercept’s troubles

Intercept Pharmaceuticals Inc. was in the news again, and its 3.25% convertible notes due 2023 were not responding favorably.

“They’ve been active on and off for the last couple of weeks,” a trader said, calling the bonds down “another 2 points” at 78.5.

A second source placed the issue in a 78 to 78.5 context, off a point.

The underlying stock was also weaker, falling $2.39, or 3.90%, to $58.84.

On Monday, the company said its liver disease drug, Ocaliva, might soon get new warnings on its labels, given that 19 patients who have taken the drug have died.

Intercept said it is in talks with the Food and Drug Administration about adding new warnings against excessive dosage.

However, the company also said that it did not expect the warnings to come with any restrictions on usage.

Mentioned in this article:

Air Transport Services Group Inc. Nasdaq: ATSG

IAC/InterActiveCorp. Nasdaq: IAC

Intercept Pharmaceuticals Inc. Nasdaq: ICPT

Red Hat Inc. NYSE: RHT

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