Morning Commentary: New convertible notes from Ligand in focus; AmTrust down in early trading

By Abigail W. Adams

Portland, Me., May 18 – Ligand Pharmaceuticals Inc. rounded out the heaviest volume week the convertibles space has seen for new deals year to date with the pricing of a $650 million offering.

Ligand sold $650 million of five-year convertible notes before the market open on Friday at the midpoint of talk with a coupon of 0.75% and an initial conversion premium of 30%.

Price talk had been for a coupon of 0.5% to 1% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The new notes were dominating trading activity in the secondary space early in the session. They were seen trading between par and 100.75, a market source said.

There was a break in trading activity as Ligand’s stock shot up almost $2, a market source said. “It’s too early to tell” where the notes stand dollar neutral, the source said.

Approximately $100 million of the new paper appeared to go up on swap and was moving with a 60% delta, a source said.

The deal attracted a decent amount of outright and hedged players and appeared to be evenly parceled out.

Ligand’s offering priced at the midpoint of talk, and Ligand is the type of bigger cap, solid name company accounts seek out, a source said.

While Ligand’s new 0.75% convertible notes were in the spotlight on Friday, the trading frenzy surrounding Akamai Technologies Inc.’s 0.125% convertible notes due 2025 simmered.

Only about $6 million of the bonds were seen on the tape early in the session, a market source said.

While new paper has occupied the convertibles space over the past week, AmTrust Financial Services Inc.’s 2.75% convertible notes due 2044 returned to focus on Friday.

The notes were down on an outright basis after activist investor Carl Icahn posed a challenge to the efforts of the primary owners to take the property and casualty insurance company private.

The notes dropped 2 points outright to trade around 92 early in Friday’s session.

AmTrust’s 2.75% convertible notes climbed more than 22 points outright to trade in the 94 range after the proposed takeout was announced in January.

“They were trading on M&A,” a market source said.

With a high premium and the investor put still a long way out, the notes are becoming less attractive, the source said.

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