Convertibles quiet ahead of holiday weekend; Amyris clears deal; RPM International eyed

By Rebecca Melvin

New York, May 23 - Convertibles traded quietly on Friday as bond markets closed early ahead of the long holiday weekend in observance of Memorial Day and as equities stretched higher.

There was a small, new deal released for secondary market dealings, but it wasn't heard in trade. Amyris Inc.'s newly priced 6.5% convertible has a coupon make-whole feature for early conversion, which is aimed at attracting hedged investor participation. But many potential participants, both outright and hedged, will pass on a deal as small as $75 million due to liquidity concerns.

Elsewhere, Allegheny Technologies Inc.'s 4.25% convertible was a big trader, as was the case earlier in the week, as its stock price hovers right around the bond's conversion strike price ahead of its maturity on June 1. The bond's price was little changed at around par.

RPM International Inc.' s 2.25% convertibles due 2020 were also in trade and changed hands at 120.5 with the underlying shares of the Medina, Ohio-based specialty chemicals maker up by about 15 cents, or 0.4%.

Tesla Motors Inc. was also a name of the day and better in line with the underlying shares of the electric car maker, which are up more than 5% this week amid news that Panasonic is bidding to be Tesla's sole battery partner in its planned gigafactory.

For the week, there were three new issues launched and priced in the U.S. convertibles market. In addition to Amyris, which priced on mixed terms, there were two other deals that priced at the aggressive end of talked terms and improved in the aftermarket, pointing to continued strong demand for new paper in the space.

Live Nation Entertainment Inc.'s 2.5% convertibles gained on swap Tuesday after the Los Angeles-based concert promoter and music venue manager priced $250 million of the senior notes at the rich end of talked terms.

And Post Holdings Inc.'s new 5.25% tangible equity units traded up Thursday after the St. Louis-based cereal maker priced an upsized $250 million of the units at the tight end of revised coupon talk and at the tight end of initial premium talk.

Equities ended the week on a positive note, with the Nasdaq stock market putting in the best showing among the major indices as it did on Thursday. The Nasdaq gained 31.47 points, or 0.8%, to 4,184.33. The Dow Jones industrial average added 63.193 points, or 0.4%, to 16,606.27, and the S&P 500 stock index added 8.04 points, or 0.4%, to 1,900.53.

Amyris prices at mixed terms

Amyris, an Emeryville, Calif.-based maker of renewable chemicals and fuels, priced $75 million of five-year convertible senior notes at terms that were mixed compared to talk. They came at the cheap end of 6% to 6.5% coupon talk and toward the rich end of 20% to 25% premium talk.

The Rule 144A deal, which priced at par, had an initial conversion premium of 24%.

Morgan Stanley & Co. LLC was bookrunning manager for the offering, for which there is a $15 million greenshoe.

The notes, which mature May 15, 2019, will be physically settled. Holders can convert early after May 15, 2015 if shares remain above the conversion price for 20 out of 30 days, and in so doing are entitled to a cash payment equal to the present value of up to three years of remaining coupons.

Proceeds are earmarked for general corporate purposes, including potential collaboration opportunities and other strategic transactions or acquisitions. In addition, Total Energies Nouvelle Activities USA may exchange up to about $9.7 million of outstanding convertible promissory notes currently held by Total for new securities issued by Amyris.

RPM in trade

RPM's 2.25% convertibles due 2020, which priced initially in December, traded at 120.5 on Friday with the shares at about $42.48. The bonds also traded at 121.

Shares ended a little higher on the day, up by 38 cents, or 0.9%, to $42.71.

A New York-based traded noted that it was interesting to get "a nice price discovery point" on RPM.

Still, he said, the investment-grade bond "may be one of the richest bonds in the convertible bond universe."

He suggested that if RPM were bought out for a 35% premium to current stock price, even if the bond was held on an outright basis, it would lose money for the investor.

"That said, the stock doesn't move around a lot, so holders of the bond here just stand to lose money in every other scenario," the trader said.

When the bond was priced in December it was seen as being held on a light delta of only 35% to 40%.

RMP priced $200 million of the seven-year bonds at the tight end of coupon talk and with a 37.5% premium.

Mentioned in this article:

Allegheny Technologies Inc. NYSE: ATI

Amyris Inc. Nasdaq: AMRS

Live Nation Entertainment Inc. NYSE: LYV

Post Holdings Inc. Nasdaq: POST

RPM International Inc. NYSE: RPM

Tesla Motors Inc. Nasdaq: TSLA

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