First Majestic to price; Oil States on tap; Insmed dominates; ‘borrow tight’ on Teekay

By Abigail W. Adams

Portland, Me., Jan. 24 – Trading volume in the convertibles market spiked on Wednesday with two new deals hitting the secondary market. Insmed, Inc.’s 1.75% convertible notes due 2025, which priced after the market close on Tuesday, dominated trading activity during Wednesday’s session.

There were almost 200 trades of the new notes by late afternoon, which accounted for about $176.5 million of the $701.5 million in trading volume by dollar amount, according to a market source.

While active, Teekay Corp.’s 5% convertible notes due 2023, which priced before the market open, paled in comparison with about $30 million in trading volume by dollar amount late in Wednesday’s session.

“The borrow on stock is pretty tight,” a market source said. However, hedge players may become more involved once the concurrent equity offering is issued, the source said.

While two new deals entered the market Wednesday, the primary market was busy preparing two more. In a deal announced prior to market open, First Majestic Silver Corp. plans to price $150 million of five-year convertible notes after the market close on Wednesday.

Price talk is for a coupon of 1.75% to 2.25% and an initial conversion premium of 32.5% to 37.5%.

Oil States International, Inc. plans to price $200 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 1.5% to 2% and an initial conversion premium of 32.5% to 37.5%.

In the existing convertibles space, Cobalt International Energy’s busted convertible notes received another boost on Wednesday. The bankrupt company’s 2.625% convertible notes due 2019 and 3.125% convertible notes due 2024 each jumped 6 points in active trading.

Cobalt filed its Chapter 11 bankruptcy plan in the U.S. Bankruptcy Court for the Southern District of Texas on Tuesday.

Insmed dominates

Insmed’s 1.75% convertible notes due 2025 were in focus during Wednesday’s session, eclipsing all other trading activity. “They did really well,” a market source said.

Insmed priced an upsized $400 million of seven-year convertible notes after the market close on Tuesday with a coupon of 1.75%, at the rich end of talk, and an initial conversion premium of 35%, richer than talk.

Price talk had been for a coupon of 1.75% to 2.25% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The notes were trading at 101.53 mid-afternoon, even with stock down about 1.8%, a market source said. The notes gained to 101.79 versus a stock price of $28.48 by late afternoon.

Insmed stock closed the day at $28.05, a decrease of 3.29%.

Insmed stock took a beating on Tuesday as the bookbuilding process was underway. The Bridgewater, N.J.-based biopharmaceutical company’s stock was down 6.01% at market close on Tuesday.

Teekay’s borrow tight

Teekay priced an upsized $125 million of five-year convertible notes with a coupon of 5% and an initial conversion premium of 20% in an overnight deal.

Pricing came at the middle of what one source called “very attractive price talk.”

Price talk had been for a coupon of 4.75% to 5.25% and an initial conversion premium of 17.5% to 22.5%.

The new paper was slow to trade early in the session, but trading activity picked up in the afternoon. The new convertible notes were trading at 100.5 versus an equity price of $9.25 late in the session, according to a market source.

“The borrow on stock is pretty tight,” a market source said. While the borrow on the stock “is an issue,” it might lighten after the settlement date with the concurrent equity offering, the source said.

The convertible notes priced alongside a concurrent equity offering of 10 million shares at $9.75 per share. “If the borrow lightens, more hedgers may get involved,” the source said.

The convertible notes from the Hamilton, Bermuda-based provider of marine services to the oil and gas industry is not without risk, the source said. “It’s a risky area. A lot of shippers got banged around for a couple of years there,” the source said.

However, with the oil and gas industry on the rise, “it’s definitely a good time to be issuing,” the source said.

Teekay has an interest in the general partner and a portion of the outstanding limited partner interests in Teekay Offshore Partners LP. Teekay Offshore also recently raised capital through a new deal.

Teeaky Offshore priced $115 million of 8.875% perpetual series E fixed-to-floating rate cumulative redeemable preferred units at par of $25.00 on Jan. 16.

New deals

While the secondary market was occupied with the new deals that entered the space, the primary market had two more deals in the works.

First Majestic Silver announced, prior to the market open on Wednesday, plans to price $150 million of five-year convertible notes after the market close.

Price talk is for a coupon of 1.75% to 2.25% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

BMO Capital Markets, TD Securities and Scotiabank are joint bookrunners for the Rule 144A and Regulation S deal, which carries a greenshoe of $22.5 million, according to a company news release.

Oil States plans to price $200 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 1.5% to 2% and an initial conversion premium of 32.5% to 37.5%.

Wells Fargo Securities LLC, BofA Merrill Lynch, J.P. Morgan Securities LLC and RBC Capital Markets LLC are joint bookrunners for the Rule 144A deal.

The notes are non-callable until Feb. 15, 2021, then callable subject to a 130% hurdle.

There are no put options, except upon a fundamental change. There is takeover and dividend protection.

Cobalt’s rise

Cobalt’s 2.625% and 3.125% convertible notes saw a flurry of trading activity on Wednesday with both gaining a little over 6 points after the company filed its bankruptcy plan on Tuesday.

The 2.625% notes traded to a low of 34.5 and a high of 37.8 before ending the session at 36.375, according to Trace data. The 3.125% convertible notes traded to a low of 34 and a high of 37.75 before ending Wednesday at 37.5.

The Houston-based petroleum exploration and production company filed for Chapter 11 bankruptcy mid-December. Cobalt is closing a sales transaction and will then distribute net cash to its creditors, Prospect News reported.

The disclosure statement hearing is scheduled for Feb. 22. Cobalt’s two major assets were its property off the coast of Angola and in the Gulf of Mexico.

Cobalt’s convertible notes saw a trading frenzy in late December after it received $500 million for its interests in Angola.

The Gulf of Mexico, however, is Cobalt’s prime property.

French oil and gas company Total SA also announced on Wednesday that it acquired Samson Offshore Anchor, LLC to increase its footprint in the Anchor site in the Gulf of Mexico.

Cobalt has a 20% stake in the operation of the Anchor site.

Mentioned in this article:

Cobalt International Energy OTCMKTS: CIEIQ

First Majestic Silver Corp. NYSE:AG

Insmed, Inc. Nasdaq: INSM

Oil States International Inc. NYSE: OIS

Teekay Corp. NYSE: TK

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