New Anthem adds after upsizing; HeartWare, PHH trade on exchange offers; HeartWare prices

By Rebecca Melvin

New York, May 7 – Anthem Inc.’s newly priced 5.25% convertible equity units traded up on Thursday after the Indianapolis-based health benefits company priced an upsized $1,175,000,000 of the three-year units at the rich end of talked terms.

The Anthem 50 par units were quoted at 50.875 bid, 51.25 offered on an outright basis by a syndicate source at late morning.

That pricing was versus shares that were lower by about 1.75%, so the new units were “definitely better on swap,” the source said.

Anthem’s older 2.75% convertibles were very actively traded and lower by about 5 points at 210, according to Trace data.

Also in primary action, HeartWare International Inc. priced $148 million of 6.5-year convertibles bonds with a 1.75% coupon and 30.5% initial conversion premium, with a little more than half of the deal allocated to holders of HeartWare’s existing bonds, which the company is offering to exchange for the new paper.

The new bonds came at a discounted price of 95.22, and they were indicated higher at 97 at the end of the day.

The older HeartWare 3.5% convertibles, which have been very illiquid, printed at 107 on Thursday and were seen at 108 at the end of the day, which was a couple of points lower from previous trades, sources said.

A second exchange transaction was announced Thursday. PHH Corp.’s 6% convertibles due 2017 traded up several points from their previous level at 215.5-ish after the Mt. Laurel, N.J.-based mortgage and fleet management services company said that it is exchanging any and all of the senior notes for cash, including a cash kiss of $125.00 per bond, plus interest and shares.

Back in established issues, Priceline Group Inc.’s convertibles were seen in trade at levels that were lower on an absolute basis with lower shares of the Norwalk, Conn.-based internet travel services company. It wasn’t immediately known how the paper did on swap.

Priceline reported earnings that were in line with expectations but guided lower for the current quarter, citing currency exchange rates.

Equity markets moved higher after a weak start, snapping a two-day losing streak. The Nasdaq stock market closed up 25.90 points, or 0.53%, to 4,945.54; the S&P 500 stock index edged up 7.85 points, or 0.38%, to 2,088.00; and the Dow Jones industrial average regained 82.08 points, or 0.5%, to 17,924.06.

New Anthem adds

Anthem’s new 5.25% convertible equity units were seen close to 51 at late morning on their debut on Thursday. Shares were lower by 1.75% at that point. The shares slipped a bit further in the session, ending the day at $155.80, which was off 2.5%.

The units were seen to have traded as high as 51.5 and as low as 50.75. On a 100 par basis, the new paper would be considered about 102.

The Anthem deal was upsized from $900 million.

Anthem priced an upsized $1,175,000,000 of convertible equity units at $50 each after the market close Wednesday to yield 5.25% with an initial conversion premium of 30%.

The registered, off-the-shelf deal was initially talked at $900 million. There is a $75 million greenshoe, which was downsized from $135 million.

Pricing came at the rich end of talked terms, which was for a 5.25% to 5.75% yield and 25% to 30% premium.

Credit Suisse Securities (USA) LLC and BofA Merrill Lynch were joint bookrunners of the offering.

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.

Proceeds are expected to be used for general corporate purposes, including repurchase of a portion of Anthem’s outstanding 2.75% convertibles.

The deal was looking very cheap ahead of final terms being fixed.

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.

HeartWare prices, exchanges

HeartWare’s new 1.75% convertibles due 2021 were not heard to have traded Thursday, but they were indicated at 97 late in the day, which was up from a discounted offer price of 95.22.

The older 3.5% convertibles due 2017 traded at 106.986 in a dealer sale, a trader said, and were also seen higher at 108, which was down from around 109 to 110 previously.

HeartWare shares lost $3.12, or 4%, to $73.48 on the day.

“Outright they came in a couple of points,” the trader said of the older bonds.

But it was difficult to determine how the paper moved on a dollar-neutral, or hedged, basis because the issue is illiquid, and it was “hard to make out the reference price.”

Nevertheless, they appeared to have traded down in line with the underlying shares, assuming a 55% delta.

The exchange deal was similar to one that Molina Healthcare Inc. transacted last September, and both deals were brought by J. Wood Capital Advisors LLC as financial adviser.

The HeartWare exchange pushes out the maturity and takes the coupon lower, but also provides paper that will move more readily with the underlying stock, a trader said.

“Guys wanted higher delta. They pick up about 20 delta points,” he said.

This looks like a good deal if you are bullish, but it was not a big win-win in terms of the exchange and the cheapness of the bond.”

The older 3.5% convertibles have 2.6-years left to maturity and they were held on a 50% to 55% delta.

The new bonds will be held on a 75% delta.

“People had different reasons for doing it,” the trader said of the exchange.

Part of the HeartWare deal, or $79 million of it, was sold to holders of the company’s 3.5% convertibles due 2017. The company exchanged $68 million of the 2017 notes, or about 47% of the issue outstanding, for $79 million of the new notes.

PHH 6% notes strengthen

PHH’s 6% convertibles due 2017 traded on Thursday at about 215.5, which was up several points from previous levels.

PHH shares were also higher, closing up $1.34, or 5.4%, to $26.15.

The company reported good earnings and also commenced an exchange offer for any and all of the 6% convertibles, of which there is $245 million outstanding.

Holders who elect to exchange their notes will receive for each $1,000 principal amount of notes $1,125.00 in cash plus accrued and unpaid interest from June 15, 2015 up to, but excluding, the settlement date for the offer, and a number of shares of PHH common stock, which will be fixed after the market close on the expiration date of the offer.

Shares will equal the sum of the daily settlement amounts for each trading day during the 25 trading days ending on expiration. The daily settlement amount for each trading day will be the quotient of: (a) 1/25 multiplied by (b) (i) 78.2014 shares of PHH common stock multiplied by the weighted average trading price of PHH common stock on such trading day, minus (ii) 1,000, divided by (c) such weighted average trading price of PHH common stock.

The offer is scheduled to expire June 15. Citigroup Global Markets Inc. is acting as financial adviser for the exchange.

Mentioned in this article:

Anthem Inc. Nasdaq: ANTM

HeartWare International Corp. Nasdaq: HTWR

Molina Healthcare Inc. NYSE: MOH

PHH Corp. NYSE: PHH

Priceline Group Inc. Nasdaq: PCLN

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