Ligand launches $135 million converts at 5.75%-6.25% yield, up 15-20%

By Ronda Fears

Nashville, Nov. 13 - Ligand Pharmaceuticals Inc. launched $135 million of five-year convertible subordinated notes with price talk of a 5.75% to 6.25% yield and a 15% to 20% initial conversion premium.

UBS Warburg is lead manager of the Rule 144A deal, which is set to price Tuesday.

Ligand shares closed down $1.89 to $5.25, but mostly due to the stock getting downgraded by three firms.

The stock borrow is tough, sources noted, which will make it less likely many hedge funds will get involved with the new deal.

"It's a small enough deal that it can probably get done with just outright buyers," said a convertible trader at a hedge fund in New Jersey.

There is interest, however.

Deutsche Bank Securities puts the deal about 4% cheap, using a credit spread of 1,200 basis points over Libor and 50% volatility in the stock.

Deutsche analysts also noted that demand for the new paper has pushed the stock borrow cost out to 425 basis points versus the standard allowance of 50 basis points.

Bear Stearns roughly puts the deal about 3.5% cheap, using a spread of 1,500 basis points over Treasuries and 50% volatility.

Aside from the dearth of new paper in the convertibles market, the Ligand deal is appealing because of the cash-pay coupon being guaranteed for two years with Treasuries.

The five-year bond will be non-callable for three years.

Ligand said it plans to use proceeds to complete the restructuring of its Avinza license and supply agreement with Elan Corp. plc, to buyback Ligand shares owned by Elan and general corporate purposes.

The new agreement calls for Elan to receive $100 million in cash in exchange for a reduction in the Avinza royalty rate to about 10% from the current rate of 30%. Also, Elan will forgo the option for a co-promotion agreement in the U.S. and Canada for Avinza, which is a form of morphine.

At Sept. 30, Ligand had $35.3 million in cash, cash equivalents and short-term investments.

Ligand reported Tuesday that its 45% increase in third quarter drug sales to $16.5 million was driven by the launch of Avinza drug in the second quarter. The net loss for third quarter of $7 million, or 10c per share, compared to a net loss of $7.7 million, or 13c per share, for third quarter 2001. Total revenues were $25.3 million, up from $19.2 million.

© 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.