Antigenics eases after surge; BioMarin, Lawson gain in gray; Linear, Delta Petroleum launch deals

By Kenneth Lim

Boston, April 17 - Antigenics Inc. slipped on Tuesday but remained well above week-ago levels as the stock settled down after the company reported promising results from a drug trial.

BioMarin Pharmaceutical Inc. was bid up in the gray market with its coming deal seen as cheap despite a long structure. Its existing convertibles eased with the stock on light volume.

Lawson Software Inc. also improved in the gray market as investors described its offering as interesting.

Linear Technology Corp. announced a $1.7 billion two-tranche offering of 20-year convertibles that will price Wednesday after the market closes. Delta Petroleum Corp. also launched a $100 million offering of 30-year convertibles expected to price after the market closes Wednesday.

Antigenics settles lower

Antigenics' 5.25% convertible due 2025 slipped about 3 points from Monday's surge, which market observers said may have been amplified by short players covering their positions.

The convertible was 78.5 against a stock price of $4.02 on Tuesday. Antigenics stock (Nasdaq: AGEN) closed at $3.96, down by 10.61% or 47 cents.

"Antigenics looks a little lower," a sellside convertible trader said. "There were a couple of trades in the afternoon, but that was it."

Antigenics said Monday that its developmental Oncophage drug appeared to improve survival in all 12 late-stage brain cancer patients involved in an early-stage trial. The drug, which had earlier failed trials on skin and kidney cancers, could be tested in more advanced trials for late-stage brain cancer following that study.

"The stock will probably be active for a while," the trader said. "I think what you saw yesterday was guys who were short on the stock trying to cover their shorts. But right now it looks like there's a bit of a better interest in the converts."

Antigenics is a New York-based biotechnology company.

BioMarin bid up in gray

BioMarin's planned $250 million offering of 10-year convertible senior subordinated unsecured convertible notes was at 100.5 bid, 101 offered in the gray market on Tuesday with its deal seen as cheap despite a long structure.

The convertibles were offered at par and were expected to price after the market closed. Price talk was for a coupon of 1.625% to 2.125% and an initial conversion premium of 17.5% to 22.5%. BioMarin stock (Nasdaq: BMRN) fell 6.79% or $1.21 to close at $16.62 on Tuesday.

There is an over-allotment option for a further $37.5 million.

Merrill Lynch is the bookrunner of the registered offering.

BioMarin, a Novato, Calif.-based biopharmaceutical company, said the proceeds of the deal will be used to fund future business development transactions and general corporate purposes.

"It looks pretty good to me," said a sellside convertible analyst. "Besides the fact that it's a 10-year no-put long paper and the credit rating's pretty wide, a CCC rated issuer, but besides that my valuation shows it around 2% cheap."

The analyst used a credit spread assumption of around 500 basis points over Libor and a volatility in the low 40% range.

"I used a little wider spreads for these because it's a longer dated paper," the analyst said. "There's more risk of the company defaulting."

A convertible trader said the deal may look cheap, but the 10-year put was too long for comfort.

"The 10-year put is not my cup of tea," the trader said. "I don't know why people would want to be locked in for 10 years...To me, that's a lot. That's a really long time. You're marrying that coupon."

But another convertible analyst said the deal could be appealing despite the bullet structure.

"This is a biotech with a late-stage product that is going to hit the market very soon," the analyst said. "Their credit spread is a little wide now, but they're an improving credit and they could become profitable next year."

"It looks quite attractive," the analyst said. "If you're outright, this could be a nice way to get a piece of any upside with some downside protection. That's why people buy convertibles, right?"

The analyst said the new convertible was comparable to BioMarin's existing 2.5% convertible due 2013. That series slid about four points outright to 123.75 against a stock price of $17.05 on Tuesday.

"It's hard to compare them," the analyst said. "The older ones are much shorter, but they're in the money now and trading around 123. You wouldn't really want to buy them now, and if you're holding them you're probably not looking to sell."

Lawson gains in gray

Lawson Software's planned $200 million of five-year convertible senior notes also ticked up to 100.5 bid, 101 offered on Tuesday with its deal described as interesting.

The convertibles were offered at par and were talked at a coupon of 2.25% to 2.75% and an initial conversion premium of 32.5% to 37.5%. Lawson stock (Nasdaq: LWSN) closed at $8.90, lower by 0.67% or 6 cents.

There is an over-allotment option for a further $40 million.

Lehman Brothers is the bookrunner of the Rule 144A offering.

Lawson, a St. Paul, Minn.-based software developer, said it will use some of the proceeds to fund convertible note hedge and warrant transactions. The company will also concurrently buy back up to $70 million of its common stock and fund general corporate purposes.

"I would expect this one to do reasonably well," a convertible analyst said. "It wasn't real exciting, but simply on the fact that it modeled a little bit cheap on the outset."

The analyst said this will be the first convertible from a software company in a few months, and it modeled around 2.5% cheap.

"I thought it was OK," a convertible analyst said. "It's priced a little bit cheap, but it's a little bit bigger premium than some of the others so I'm not sure if it's as exciting for hedgies as it might be. Plus if you're an outright account you probably don't have as much downside protection as something that was a little bit better priced or a lower premium."

Linear, Delta launch deals

Linear plans to price $1.7 billion of 20-year convertible senior notes in two tranches on Wednesday after the market closes. The $1 billion A series is talked at a coupon of 2.75% to 3.25% and an initial conversion premium of 38% to 43%, while the $700 million B series is talked at a coupon of 2.75% to 3.25% with an initial conversion premium of 40% to 45%.

The convertibles will be offered at par.

There is no over-allotment option.

Credit Suisse is the bookrunner of the Rule 144A offerings.

Linear Technology, a Milpitas, Calif.-based maker of linear integrated circuits, said it will use the proceeds of the deal to partly fund a planned $3 billion accelerated stock buyback.

Meanwhile, Delta Petroleum's $100 million of 30-year convertible senior notes is slated to price Wednesday after the market closes.

Price talk was not available Tuesday evening, syndicate sources said.

There is an over-allotment option for a further $15 million.

JPMorgan, Lehman Brothers and Deutsche Bank are the bookrunners of the registered offering.

Delta Petroleum, a Denver-based oil and gas company, said the proceeds of the stock and convertible deals will be used to reduce outstanding debt under its credit facility, to fund capital expenditures and for other general purposes. The company will also redraw some or all of the amounts paid down on its credit facility.

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