New Insulet adds on swap; purchases of older Insulet planned; NuVasive dips; Micron lower

By Rebecca Melvin

New York, June 24 - Insulet Corp.'s newly priced 3.75% convertibles traded up to 102.5 versus an underlying share price of $22.30 on their first day of trade Friday, or about a point on a hedged basis, after the slightly upsized $125 million registered deal came at the midpoint of talk, according to a syndicate source.

The existing Insulet 5.375% convertibles due 2013, of which there is about $70 million outstanding, are being repurchased by the company using about $85 million of the proceeds from the new deal. They traded actively on Thursday at the 121 to 121.5 level.

NuVasive Inc.'s 2.75% convertibles, which slipped below par on their debut in the convertibles market on Thursday, traded at 99.5 bid, 100.25 offered early Friday, according to a New York-based syndicate source.

Elsewhere, there was some action in Micron Technology Inc., which saw its stock torpedoed by lower-than-expected revenue and earnings on the back of continued softness in consumer PCs and laptops.

Both new deals - Insulet and NuVasive - were upsized and came at the midpoint of price talk.

While supply got a boost this week from $340 million in two new deals, supply is still "dramatically lower than most people would have expected this far into the recovery," a Chicago-based trader said.

Daily volume has been depressed due the valuation and supply situations, and this week's challenging broader markets, which one trader described as "a little tenuous," only served to further depress trading.

"It's horribly slow," a New York-based trader said of Friday's session.

"Convertibles continue to face pressure as market participants shun riskier assets amid an uncertain macro backdrop," Citigroup's convertibles sales and trading desk said in commentary Friday, "...with convertible arbitrage investors still largely on the sidelines as investors digest disconcerting market developments."

The desk said that many investors are cleaning up positions and opportunistically hitting bids, rather than doing any wholesale selling.

In fact, the equity rally early in the week "saw some investors chasing momentum, with fundamental investors buying and some hedge funds looking to establish or add to cheap vol. positions," Citigroup said.

New Insulet adds on swap

Insulet's newly priced 3.75% convertibles traded at 102.5 versus an underlying share price of $22.30 on Friday and traded actively and pretty consistently at that level, according to a syndicate source at mid afternoon.

Shares of the Bedford, Mass.-based medical device maker opened higher and traded up into the market close - contrary to the broader equity markets - settling up 83 cents, 4.2%, to $20.60 in heavy volume.

At the $22.30 stock price, the convertibles were up around a point on swap, according to the syndicate source.

There was $52 million in Trace volume of the new bonds at mid afternoon.

"This one all around worked out," the syndicate sellsider said, contrasting Insulet to NuVasive, which saw its shares and convertibles move lower.

Pricing of Insulet's registered, off-the-shelf deal came at the midpoint of talk, which was 3.5% to 4% for the coupon, with an initial conversion premium of 30% to 35%.

The upsizing was by $15 million to $125 million from $110 million. And the greenshow was upsized to $18.75 million from $16.5 million.

The deal came together with a $22.8 million secondary stock offering, or 1,153,420 shares at $19.77 per share, which was the closing share price on Thursday.

The shares of common stock were being offered under an effective shelf registration by stockholders who received shares in connection with Insulet's previously announced acquisition of Neighborhood Diabetes.

J.P. Morgan Securities LLC was the bookrunner for the convertibles deal, and JPMorgan and Canaccord Genuity Inc. were the bookrunners of the stock offering, from which Insulet does not receive proceeds.

Proceeds from the notes will be used for general corporate purposes, including the possible repurchase of existing debt that matures June 2013.

Existing Insulet repurchased

The older Insulet 5.375% convertibles due 2013, a $75 million deal originally priced in 2008, was very active Thursday with many customer sales and dealer buys. In contrast the older NuVasive bonds, which are also being repurchased by the company with proceeds of the new deal, looked much more balanced between buys and sells, according to a New York-based sellside trader.

The older Insulet traded a lot on Thursday at 121 and 121.5. The company said in its release that it intended to repurchase the older notes concurrently with the new note offering.

Micron convertibles slip

Micron's 1.875% convertibles due 2014, or the "old" notes, traded at 97 versus an underlying share price of $7.30, which compared to 99 versus an underlying share price of $8.25 on Wednesday.

Micron's 1.875% convertibles due 2027, which are the "new" ones that were exchanged last October, traded at 101 versus the $7.30 share price, compared to 106.5 versus a share price of $8.25 on Wednesday.

Shares of the Boise, Idaho-based chip maker collapsed $1.22, or 14.5%, on Friday to settle at $7.21 in extremely heavy volume.

Of the weak earnings report, Micron executives said they were seeing weakness in the PC market, which was dragging down shipments of the company's DRAM memory chips. Prices of DRAM chips have also gone down, and Micron said that it had higher inventories currently than it typically holds.

One sellsider said that the bad Micron earnings report was a "bad omen."

He also said that as far as the convertibles were concerned, perhaps it wasn't so bad for the company because it is trying to buy back some of its paper.

Mentioned in this article:

Insulet Corp. Nasdaq: PODD

Micton Technology Inc. NYSE: MU

NuVasive Inc. Nasdaq: NUVA

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