Aurora convertibles on tap; Energizer expands on debut; EFII, Ligand notes bludgeoned

By Abigail W. Adams

Portland, Me., Jan. 16 – The moment many were waiting for came after the market close on Wednesday – the first convertible bond offering of 2019. And the deal comes from the cannabis sector.

Aurora Cannabis Inc. plans to price $250 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 5% to 5.5% and an initial conversion premium of 10% to 15%, according to a market source.

BMO Capital Markets and Cowen and Co. LLC are joint bookrunners for the Rule 144A and Regulation S offering, which carries a greenshoe of $37.5 million.

While there have been two mandatory convertible offerings thus far, the Aurora deal marks the first convertible bond offering of the year.

Meanwhile, Wednesday opened with new mandatory convertible paper entering the convertibles secondary space.

Energizer Holdings, Inc. priced $187.5 million $100-par mandatory convertible preferred stock prior to the market open on Wednesday.

The new paper was in demand in the secondary space and expanding on market debut.

Electronics for Imaging Inc.’s 2.25% convertible notes due 2023 were “getting crushed” on Wednesday as stock tanked after the digital printing technology company slashed its forward guidance, sources said.

The notes tanked on both an outright and dollar-neutral basis.

Ligand Pharmaceuticals Inc.’s 0.75% convertible notes due 2023 were also bludgeoned on both an outright and dollar-neutral basis after short-seller Andrew Left of Citron Research took aim at the company.

Energizer expands

Energizer priced $187.5 million $100-par mandatory convertible preferred stock prior to the market open on Wednesday with a dividend of 7.5% and a threshold appreciation premium of 21.5%.

Pricing came at the midpoint of talk for a dividend of 7.25% to 7.75% and toward the rich end of talk for a threshold appreciation premium of 17.5% to 22.5%.

The deal priced concurrently with a $187.5 million, or 4,076,086 share, offering of common stock, which priced at $46.00 per share.

In connection with the mandatory convertible preferred stock offering, the company entered into capped call transactions with a cap price of $64.40, representing a premium of 40% above the public offering price on the common stock.

The call spread on a mandatory convertible preferred was a unique feature of the deal.

While not often seen, the call spread raised the price of dilution to the common, a source previously said.

The new paper was trading up on its market debut, a market source said.

The 7.5% mandatory convertible preferred stock was trading between 102.25 and 102.75 on an outright basis. They were expanded about 0.75 point dollar-neutral, another source said.

Almost 2 million of the mandatory convertible preferred stock traded during Wednesday’s session. Energizer common closed Wednesday at $46.60, a decrease of 0.47%.

Energizer is a household name and a solid company, a market source said.

The deal was heard to be in demand during bookbuilding and was performing well in the secondary space with people chasing the yield, sources said.

The mandatory convertible preferred stock priced concurrently with a $187.5 million common stock offering, which priced at $46.00 a share.

In addition to the mandatory convertible preferred stock and common stock offering, Energizer launched a two-day roadshow for a $600 million eight-year senior notes offering with initial price talk for a yield of 8% to 8¼%, Prospect News reported.

Proceeds from the capital raise will be used to fund the acquisition of the global auto care business of Spectrum Brands Inc.

EFII ‘crushed’

Electronics for Imaging’s 2.25% convertible notes due 2023 were “getting crushed” on Wednesday, a market source said.

The notes tanked on both an outright and dollar-neutral basis with stock hammered after the digital printing technology company slashed its forward guidance.

The 2.25% notes traded as low as 88 early in Wednesday’s session. They pared their losses and traded up to 91.75 in the late afternoon. The notes were 101.75 bid, 102.25 offered on Tuesday.

The notes were contracted as much as 2 points dollar-neutral during Wednesday’s session but pared their losses to a 1-point dollar-neutral contraction in the mid-afternoon, a market source said.

Electronics for Imaging stock traded as low as $19.76 but closed the day at $22.37, a decrease of 17.7%.

Sources were surprised the notes did not hold better. However, the 2.25% notes were now “a decent buy” with a large coupon, a market source said.

Stock tanked after the company announced preliminary results for the fourth quarter.

The company slashed its fourth-quarter guidance to non-GAAP earnings per share of 45 cents to 47 cents on revenue of $255 million to $257 million from the previously forecast 57 cents to 65 cents a share on revenue of $275 million to $285 million.

Ligand tanks

Ligand Pharmaceuticals’ 0.75% convertible notes due 2023 were also crushed on an outright and dollar-neutral basis after short-seller Andrew Left’s Citron Research took aim at the company.

The 0.75% convertible notes dropped 6 points outright and were contracted as much as 3 points dollar-neutral, a market source said.

The 0.75% notes traded down to close the day at 82.625. The notes were on a 30% delta but changed to 40%, a market source said.

Ligand stock traded as low as $98.56 on Wednesday but closed the day at $110.05, a decrease of 16.48%.

Ligand stock was taking a hit after Left’s Citron Research targeted the company in a report.

The report “Ligand Pipeline, Pipe Dream,” took aim at Ligand’s claims of revenue from royalties from drugs from its strategic partners, which the report alleged were overstated.

The report also claimed that some of Ligand’s partners had bogus addresses listed as their headquarters.

The report spooked investors, a market source said.

Mentioned in this article:

Aurora Cannabis Inc. NYSE: ACB

Electronics for Imaging Inc. Nasdaq: EFII

Energizer Holdings, Inc. NYSE: ENR

Ligand Pharmaceuticals Inc. Nasdaq: LGND

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