New Sequenom pops on debut; Sanchez also lifts; Jarden revises talk, prices; Genesee to price

By Rebecca Melvin

New York, Sept. 12 - There were five new deals in the convertible bond market on Wednesday, something that has not occurred in some months, given low issuance levels for much of the third quarter. Two deals were in trade after pricing late Tuesday, one priced after the market close Wednesday, one was expected to price, and the last was launched after the market close for pricing Thursday.

Sequenom Inc.'s newly priced 5% five-year convertibles, which were upsized to $110 million of bonds from an initially talked $100 million, performed exceptionally well, with a pop in the underlying shares contributing to the frothiness of the deal.

On a delta-adjusted basis, the new Sequenom paper was seen expanding 2 points, an East Coast-based buysider said. However stock borrow in the name was poor, preventing a lot of hedged participation.

Sanchez Energy Corp.'s newly priced 4.875% convertible perpetual preferreds, which were upsized to $125 million from $100 million, also added despite the company's shares being slightly lower. They new convertibles closed the day at 50.75 bid, 51.25 offered versus the closing stock price of $19.03, according to a syndicate source. The new preferreds have a par of $50.

After the market close, Jarden Corp. priced its $450 million of six-year convertible senior notes to yield 1.875% with an initial conversion premium of 34%, which was at the talked price point for the coupon and near the midpoint of revised talk on the premium, which was 32.5% to 35%, revised from an initially talked 27.5% to 32.5%.

Meritage Homes Corp. launched a deal early Wednesday for pricing after the close. The company planned to price $100 million of 20-year convertible senior notes to yield 1.375% to 1.875% with an initial conversion premium of 47.5% to 52.5%.

The Scottsdale, Ariz.-based homebuilder's deal looked similar to that of Toll Brothers Inc., which priced $250 million of 20-year convertibles last week to yield 0.5% with a 50% initial conversion premium. It probably will perform similarly, a West Coast-based trader said of Meritage.

After the market close, Genesee & Wyoming Inc. launched a $200 million sale of three-year mandatory convertibles that was talked to yield 5% to 5.5%, with an initial conversion premium of 17.5% to 22.5%.

Market players were more expectant than they have been about the prospects of a decent amount of continuing new issuance volume on the heels of this latest crop.

The difference between now and last year, when deal terms were similar, is that stock prices have improved to the point where issuers are seriously considering convertibles as a funding option, a New York-based syndicate source said.

"Terms including coupon and premium are good, but little changed from where they were a year ago, but stock prices have come up," the syndicate source said.

Sequenom pops

Sequenom's newly priced 5% convertibles were quoted at 107 bid, 108 offered versus an underlying stock price of $3.90 near the end of the session on Wednesday. The first trades out of the chute were at 102, a syndicate source said.

The bonds flew higher along with the underlying shares of the San Diego-based provider of genetic analysis products. Shares rose 28 cents, or 7.7%, to $3.91 in heavier than average volume.

Still, on a delta-adjusted basis, the bonds were seen to have expanded by about 2 points.

Driving the securities higher, a source said, was that investors liked the company's story. The company is a provider of genetic analysis products used in biomedical research, molecular medicine and agricultural applications.

But hedged participation was hindered by a lack of ability to borrow shares, market players pointed out.

The bonds also had a feature that was somewhat unique. If the company calls the notes, a make-whole fundamental change will be deemed to occur. As a result, the company will in certain circumstances increase the conversion rate for holders of the notes who convert.

This feature was described by a syndicate source as essentially a different form of coupon make-whole. Instead of getting extra coupon, the holder gets extra shares. It replaces value for the missed income, the syndicate source said.

Sequenom priced an upsized $110 million of five-year convertible bonds after the market close on Tuesday to yield 5%, with an initial conversion premium of 27.5%. The Rule 144A deal was initially talked at $100 million in size.

Pricing came at the midpoint of talk, and was sold via bookrunners J.P. Morgan Securities LLC and Jefferies & Co.

Proceeds will be used to fund the commercialization of a laboratory-developed test, as well as for other general corporate purposes, including research and development, capital expenditures, working capital and general administrative expenses.

The notes are non-callable for three years and then provisionally callable at a price hurdle of 140%. There are no puts. There is also takeover and dividend protection.

Sanchez Energy adds

Sanchez Energy's 4.875% convertible preferreds were seen at 50.875 versus an underlying share price of $19.10 during the session, and closed at 50.75 bid, 51.25 offered versus the close.

The deal did well as it was attractively priced, or cheap, a trader said.

The Houston-based oil and natural gas exploration and development company priced an upsized $125 million of convertible preferred stock, and the Rule 144A deal has a $25 million greenshoe. The deal was initially talked at $100 million for the base deal with a $20 million greenshoe.

Pricing came at the talked price points, with RBC Capital Markets LLC as sole bookrunner.

The perpetual preferred stock is non-callable at any time, but mandatorily convertible at the issuer's option on or after Oct. 5, 2017 if the company's common stock exceeds 130% of the effective conversion price for 20 out of 30 days.

Proceeds will be used for capital expenditures and, in particular, to accelerate its drilling program across all of its operating areas, for its other operating expenses and for general corporate purposes.

Jarden prices near midpoint

Rye, N.Y.-based consumer products company Jarden priced $450 million of six-year convertible senior notes after the market close on Wednesday to yield 1.875% with an initial conversion premium of 34%.

Pricing came at the talked price point for the coupon and near the midpoint of revised talk on the premium, which was 32.5% to 35%. The premium talk was revised during marketing from an original 27.5% to 32.5% premium range.

There is a $50 million over-allotment option for the deal, which was sold via left lead bookrunner, Barclays, and J.P. Morgan Securities LLC, also a bookrunner.

Barclays was the stabilization agent and is also handling billing and delivery.

The notes are non-callable for life with no puts. There is dividend and takeover protection.

The company's board has also authorized an increase to the company's stock repurchase program to allow for the repurchase of up to $250 million in common stock.

Up to $125 million of the proceeds of the convertible bond sale will be used to repurchase common stock through negotiated transactions with investors of the convertible bonds. Remaining proceeds will be used for general corporate purposes.

Genesee & Wyoming to price

Genesee & Wyoming, a Greenwich, Conn.-based owner and operator of short line and regional freight railroads, plans to price $200 million of three-year mandatory convertibles after the market close Thursday that were talked to yield 5% to 5.5%, with an initial conversion premium of 17.5% to 22.5%, according to a syndicate source.

The company is also selling 3.5 million shares of common stock, including 233,996 shares of stock being sold by the chairman of the board of directors.

The registered offering of mandatory convertibles includes a $30 million overallotment option and is being sold via Bank of America Merrill Lynch, Citigroup Global Markets Inc. and J.P. Morgan Securities LLC.

Proceeds will be used to fund partially the acquisition of RailAmerica Inc.

If the acquisition is not consummated, the company plans to use proceeds from the offerings for general corporate purposes including strategic investments and acquisitions. But the company can also redeem the units April 30, 2013 if the RailAmerica deal is not completed.

Mentioned in this article:

Genesee & Wyoming Inc. NYSE: GWR

Jarden Corp. NYSE: JAH

Meritage Homes Corp. NYSE: MTH

Sanchez Energy Corp. NYSE: SN

Sequenom Inc. Nasdaq: SQNM

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