Anthem deal looks cheap; New Source prices $44 million preferreds; Whiting Petroleum flat

By Rebecca Melvin

New York, May 6 – U.S. convertibles were generally quiet on Wednesday as traders sized up a planned $900 million offering of mandatory convertibles that Anthem Inc. was expected to price after the market close and as equities continued to pull back in the broader markets.

The planned Anthem convertibles looked very cheap, sources said, but allocations were expected to be linked to redemption of existing paper that is being bought back with proceeds of the new deal, and therefore enthusiasm for the deal was somewhat tempered.

Anthem’s existing’s 2.75% convertible bonds due 2042, of which a portion will be repurchased with proceeds of the new deal, remained active in trade after trading actively on Tuesday, and they were steady at around 208 with the stock at about $154.50.

Also in the primary market, New Source Energy Partners LP priced $44 million of 11% convertible preferred units in a registered deal sold via Stifel, Nicolaus & Co. Inc. and Robert W. Baird & Co.

The new units were not heard in trade. New Source shares traded up in the early going but fell back into negative territory and ended down a nickel, or 0.9%.

“It was pretty quiet,” a New York-based trader said about the convertibles session.

Whiting Petroleum Corp.’s convertibles traded in line with their underlying shares as oil prices pulled back from an intraday high that represented a new peak for 2015.

After reaching a peak of $62.58 per barrel, West Texas intermediate crude oil for June delivery settled up 1.3% to $61.21 a barrel. Data showed U.S. oil stockpiles declined last week.

LinkedIn Corp.’s 0.5% convertibles due 2019 continued to trade actively on Wednesday, with shares finding their footing late in the day and finishing in positive territory after a weak session. The convertibles were said to be steady.

TetraLogic Pharmaceuticals Corp.’s 8% convertibles collapsed in tandem with a plunge in the underlying shares of the Malvern, Pa.-based biopharmaceutical company after it announced it has temporarily halted enrollment in a study of its experimental hepatitis B vaccine due to “cranial nerve palsies observed in the first cohort.”

TetraLogic also announced that it has canceled a secondary stock offering of 6.25 million shares of common stock for $4.00 each.

The TetraLogic convertibles due 2019 were indicated lower at 69 from about 83, according to a market source. Shares skidded $1.38, or 37%, to $2.40.

The $47 million TetraLogic convertibles priced last June.

Equity markets extended losses for a second day with the Nasdaq stock market down another 19.68 points, or 0.4%, to 4,919.64, after dropping 1.6% on Tuesday. The S&P 500 stock index slipped 9.3 points, or 0.45%, to 2,080.15, after falling 1%, or 25 points on Tuesday. And the Dow Jones industrial average lost 86.22 points, or 0.5% to 17.841.98, after losing 0.8% on Tuesday.

Anthem’s deal looks ‘cheap’

The Anthem equity units looked very cheap, sources said, but the deal was not expected to be allocated to a broad swath of investors.

One source said the deal was about 3% cheap using a 2 skew, a credit spread of 100 basis points over Libor and a 24% and 22% vol.

A second source said he got the deal 3.5% cheap.

A second source said that mandatories typically look cheap and that the Anthem common yields 2%.

The units deal was talked to yield 5.25% to 5.75% with an initial conversion premium of 25% to 30%.

Meanwhile, allocations “might be tight,” a trader said, because the issuer was expected to try to exchange the existing convertibles first so that holders of the convertibles would essentially get priority.

Standard & Poor’s assigned a BBB+ debt rating to the convertibles of the Indianapolis-based benefits company, and Moody's Investors Service has assigned a Baa3(hyb) subordinated debt rating to the deal.

Anthem said that it plans to price $900 million of convertible equity units at $50 each. Proceeds are expected to be used for general corporate purposes, including repurchase of a portion of Anthem’s outstanding 2.75% convertibles.

The registered deal has a $135 million greenshoe and was being sold via Credit Suisse Securities (USA) LLC and BofA Merrill Lynch as joint bookrunners.

The units are non-callable and mature in three years. They have full dividend protection via a conversion rate adjustment above $0.625 per quarter. There is a takeout put, including make-whole shares.

Whiting Petroleum unchanged

Whiting’s 1.25% convertibles, which debuted in the convertibles market in March, moved in tandem with their underlying shares on Wednesday and were seen around 116 bid, 116.75 offered versus a share price of $36.50 near the end of the session.

“Whiting traded a bunch away from us,” a New York-based trader said, calling the paper unchanged on a dollar-neutral, or hedged, basis.

Whiting shares pulled back after an early gain to close down 43 cents, or 1.2%, at $36.41 in active trade.

A rally in crude oil prices that began a month ago may have hit a top, market pundits said Wednesday.

Mentioned in this article:

Anthem Inc. Nasdaq: ANTM

LinkedIn Corp. Nasdaq: LNKD

New Source Energy Partners LP Nasdaq: NSLP

TetraLogic Pharmaceuticals Corp. Nasdaq: TLOG

Whiting Petroleum Corp. NYSE: WLL

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