New NuVasive jumps on swap in active trade; older NuVasive adds a point; energy gains

By Rebecca Melvin

New York, March 11 – NuVasive Inc.’s newly priced 2.25% convertibles moved up in active trade on Friday after the San Diego-based medical device company priced $550 million of the five-year senior notes at the rich end of coupon talk and the midpoint of premium talk.

The NuVasive bonds traded late in the session at 105 and gained 3 points on a dollar-neutral, or hedged, basis, market sources said.

The bonds were the most active name of the day, with more than $150 million of the bonds changing hands, according to Trace data.

The older NuVasive 2.75% convertibles traded up to 122.5, which was up about a point from Thursday.

Proceeds of the new bond were being used to repurchase more than half of the old issue, which matures in 2017. The deal was positive for the market, a New York-based trader said.

“Bondholders received a premium for their old bonds, and they got to swap into a brand new bond, which made 3 points,” the trader said.

All told there was about $950 million in new issuance in three deals this past week, which almost doubled the issuance tally for the year to date. “It was definitely a positive for the convert market and hopefully a sign of things to come,” a trader said.

Meanwhile, the convertibles market overall was trading higher in tandem with the higher equity and oil markets.

“The ECB put or call is certainly lifting the asset class, and with the oil rally, it’s risk on,” the trader said.

The trader was referring to the European Central Bank’s announcement on Thursday to implement a new, unexpectedly robust round of stimulus measures, including interest rate cuts and an expansion of its asset-purchase program.

The ECB cut its main refinancing rate to 0% and its deposit rate to minus 0.4%. The bank also expanded its monthly asset purchases to €80 billion, which will take effect in April. In addition, the central bank will add corporate bonds to the assets that it can buy, namely investment-grade, euro-denominated bonds issued by non-bank corporations. These purchases will start around midyear. Finally, the bank will also launch a new series of four targeted longer-term refinancing operations with maturities of four years starting in June.

With oil prices “pushing 39,” or $39.00 per barrel for West Texas intermediate crude for April delivery, energy convertibles were on the rise, the trader said.

Whiting Petroleum Corp.’s 1.25% convertibles were trading at 56.5, which is up more than 5 points on the week. Whiting shares gained 42 cents, or 5.2%, to $8.45.

A month ago, on Feb. 11, the Whiting convertibles and the credit market in general hit a low. The Whiting convertibles were dropped to 32 or 33, the trader said.

Cobalt International Energy Inc. and Chesapeake Energy Corp. were also trading up on Friday.

“Energy is definitely back in vogue and people are marking them up,” the trader said.

New NuVasive jumps

NuVasive’s 2.25% convertibles due 2021 traded at 104.25, a convertibles market source said. NuVasive shares closed up $1.91, or 4%, to $47.06.

A second source said the bond was 104.5 bid, 104.875 offered near the end of the session.

The bond opened up 3 points out of the gate, so some market players needed to stay clear of the trading.

Pricing of the Rule 144A deal came at the rich end of 2.25% to 2.75% coupon talk and at the midpoint of 30% to 35% premium talk.

There is a $100 million greenshoe for the deal, which was sold via joint bookrunners BofA Merrill Lynch and Goldman Sachs & Co.

The bonds are non-callable for three years and then are provisionally callable if shares exceed 130% of the conversion price. There are no puts.

There is full dividend protection and protection for investors upon a change of control.

In connection with the pricing of the notes, NuVasive entered into convertible note hedge and warrant transactions with affiliates of one or more of the initial purchasers. The strike price of the warrant transactions will initially be $80.00 per share, which represents an initial conversion premium of 77% from the issuer’s perspective.

About $344 million of proceeds will be used to repurchase about $277 million of NuVasive’s outstanding $402.5 million of 2.75% convertible notes due 2017. About $56 million will be used to purchase the bond hedge, and remaining proceeds are for general corporate purposes.

San Diego-based NuVasive is a medical device company focused on developing products for minimally disruptive surgical treatments for the spine.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Cobalt International Energy Ltd. NYSE: CIE

NuVasive Inc. Nasdaq: NUVA

Whiting Petroleum Corp. NYSE: WLL

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