Novavax is year’s first new convertible, looks a few points cheap; Chesapeake down

By Rebecca Melvin

New York, Jan. 25 – Novavax Inc.’s planned $200 million of seven-year convertible senior notes looked to have a fair value of about 102 to 103 at the midpoint of talked terms, using a credit spread of 800 basis points over Libor and a 40% vol., according to a market source.

On the heels of the new deal launched early on Monday, shares of the Rockville, Md.-based biotechnology company tanked late in the session, closing down $1.06, or 16%, at $5.56.

The Novavax offering represents the first new deal for the convertibles space this year, and how it prices will be “a tell-tale sign for converts,” the source said regarding the primary market.

Meanwhile, the secondary market was pretty quiet, with one source attributing the lagging start on Monday to winter storm Jonas, which struck the U.S. East Coast late last week and into the weekend. But there were some names that registered moves.

SanDisk Corp.’s convertibles fell on an outright basis, but were mixed on a dollar-neutral, or swap basis, as shares dropped after an analyst downgrade of its shares and a report casting doubt on the expected Western Digital Corp. acquisition of the Milpitas, Calif.-based chip storage company.

Credit Agricole downgraded SanDisk shares to ‘underperform” from “outperform” and cut its stock price target to $70.00 from $86.00. Credit Agricole also said in a Barron’s article over the weekend that if China’s Unisplendor doesn’t buy a 15% stake in Western Digital for $92.50 per share as it agreed, then the planned acquisition of SanDisk could be threatened.

Chesapeake Energy Corp.’s convertibles were indicated lower along with a 16% drop in the shares of the Oklahoma City-based natural gas producer after the company said Friday it has suspended its dividend payments on its convertible preferred stock to save money to buy back debt.

Chesapeake was also weighed down along with the overall energy sector and the broader markets by another crude oil price drop. West Texas intermediate crude oil for March delivery fell $2.36, or 7.3%, to $29.83 per barrel on Monday after popping $2.61, or 9%, on Friday.

The Nasdaq composite stock index fell 72.69 points, or 1.6%, to 4,518.49, the S&P 500 stock index fell 29.82 points, or 1.6%, to 1,877.08 and the Dow Jones industrial average lost 208.29 points, to 1.3%, to 15,885.22.

Whiting Petroleum Corp.’s bonds were under pressure again as crude oil prices retraced gains notched Friday. Whiting’s 1.25% convertibles traded at 52 in the early going, according to Trace data, against shares for the E&P company that were down 3.6% at $6.38. Whiting shares closed down by a greater magnitude, shedding 49 cents, or 7.4%, to $6.13.

Novavax looks cheap

Novavax’s $200 million of seven-year convertibles were seen pricing after the market close. At the midpoint of talk – which represents a 3% coupon and 30% initial conversion premium – they were seen 2 to 3 points cheap.

Novavax shares fell $1.06, or 16%, to $5.56 on Monday.

Market players were eyeing what they considered the long tenor of the bonds at seven years with no interim put. “Guys are just shaking their heads at that one,” a market source said.

“Guys were also trying to figure [the company] out. It has a couple of drugs in phase 3 trials,” the source said.

Proceeds from the offering are earmarked for clinical-stage vaccine candidates, including the late-stage clinical trials of its RSV F Vaccine in older adults and pregnant women, as well as its other clinical and preclinical research programs, and general corporate purposes.

The Rule 144A deal has a $30 million greenshoe and was being sold via joint bookrunning managers Citigroup Global Markets Inc. and J.P. Morgan Securities LLC.

J. Wood Capital Advisors is financial adviser to Novavax.

The notes are non-callable and have takeover protection.

In connection with the pricing of the notes, Novavax plans to enter into privately negotiated capped-call transactions with one or more option counterparties.

SanDisk mixed as shares fall

SanDisk’s 0.5% convertibles traded down to 98.6 on Monday, which was down 2.5 points on an outright basis from above par. But on a swap basis, the SanDisk 0.5% convertibles were down only about 0.25 point after being positive on swap earlier in the session.

The SanDisk 1.5% convertibles due 2017 were last seen at 132.6, which was seen up about 0.5 point on a swap basis against shares that were down $5.68, or 8%, at $61.74.

The SanDisk convertibles had both been trading a little better in the early going on stock weakness.

Last October, Western Digital agreed to buy SanDisk for $19 billion in cash and stock, or $86.50 per share, representing a premium of about 15% to SanDisk’s closing share price on Oct. 21. That takeout price is 28% higher than the current stock price, and Credit Agricole said if Unisplendor reneges on its Western Digital deal, then the merger with SanDisk would require approval from Western Digital shareholders.

Meanwhile, Western Digital stock closed at $42.47 on Monday and is down nearly 30% for the year to date. Both shares have been hurt amid a downdraft that has hit stock markets this year.

Chesapeake lower

On Monday, Chesapeake shares closed down 56 cents, or 16%, to $2.95.

One of Chesapeake’s series of 5.75% convertible preferreds was seen down at 119 from about 180, and the second 5.75% series was seen down to 122 from 180, according to a pricing source.

The Chesapeake 4.5% convertibles were down to 7 from about 16.

The Chesapeake 2.5% convertibles didn’t really trade but did change hands down a point or so at 51.5.

Chesapeake will use the savings of about $170 million per year from the dividend suspension to purchase debt.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Novavax Inc. Nasdaq: NVAX

SanDisk Corp. Nasdaq: SNDK

Whiting Petroleum Corp. NYSE: WLL

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