Omeros convertibles on tap; Microchip in focus; Ligand improves; Horizon Global tanks

By Abigail W. Adams

Portland, Me., Nov. 8 – After two consecutive weeks with no new deals pricing, the primary market showed signs of awakening with an overnight deal launched after the market close on Thursday.

Omeros Corp. plans to price $210 million of five-year convertible notes at par prior to the market open Friday with price talk for a fixed coupon of 6.25% and an initial conversion premium of 20% to 25%, according to a market source.

Cantor Fitzgerald & Co. is the structuring adviser for the Rule 144A deal, which carries a greenshoe of $40 million.

With equity markets firming after a brutal October and the U.S. midterm elections and Federal Reserve meeting in the rearview mirror, the floodgates are expected to open in the Nov. 12 week with a backlog of new deal activity coming to market, sources said.

Meanwhile, earnings-related stock moves continued to dominate trading activity in the convertibles secondary space on Thursday.

After several large price movements during Wednesday’s session, focus shifted on Thursday toward Microchip Technology Inc.’s, Ligand Pharmaceuticals Inc.’s and Wright Medical Group Inc.’s convertible notes, with the companies seeing a bump in stock after earnings announcement.

While less active, Horizon Global Corp.’s 2.75% convertible notes due 2022 tanked post-earnings.

Western Digital Corp.’s 1.5% convertible notes due 2024 again saw high-volume trading on Thursday although with little movement in price.

While the notes have been scarce in the secondary market since the $1.1 billion issue priced in January, there has been an uptick in sellers recently, a market source said.

Microchip’s earnings

Microchip Technology’s convertible notes were in focus after the company reported an earnings beat.

The semiconductor company’s equity-sensitive notes climbed outright as stock jumped during Thursday’s session.

The 1.625% convertible notes due 2027 jumped more than 4 points outright to trade up to 102.375 with stock up more than 6.5% early in the session, according to a market source.

They traded down to 101.25 as stock came in during the afternoon.

More than $20 million of the bonds were on the tape late in the session.

While less active, Microchip’s 1.625% convertible notes due 2025 jumped almost 10 points outright to 145.

Microchip stock traded as high as $76.00 on Thursday but closed the day at $74.45, an increase of 5.9%.

Microchip reported non-GAAP earnings per share of $1.81 versus analyst expectations for earnings per share of $1.74. Revenue of $1.51 billion was in line with estimates.

Ligand improves

Ligand Pharmaceuticals’ 0.75% convertible notes due 2023 were seen as unchanged to slightly improved dollar-neutral with stock up after an earnings beat.

The notes, which saw a steep sell-off in October, were up about 2.5 points outright to 98 during Thursday’s session.

The notes were seen unchanged to improved 0.375 point on a dollar-neutral basis, sources said.

While the theoretical delta on the notes is lighter, most play the name with a delta in the 60s, a market source said.

Ligand stock traded as high as $183.67 on Thursday but closed the day at $171.19, an increase of 5.04%.

Ligand reported earnings per share of $1.32 for the third quarter compared to analyst expectations for earnings of 99 cents a share.

The biopharmaceutical company reported revenue of $45.66 million versus analyst expectations for revenue of $41.70 million.

The 0.75% notes due 2023 saw a steep sell-off in October. The notes opened the month in the 120 range but dropped to the 95 range by month’s end, according to Trace data.

Despite the steep outright drop, the notes held dollar-neutral.

The credit even tightened during the sell-off, a market source said.

“This issue is very attractive to outrights. Every time there’s a sell-off, they’re in the market buying bonds,” a market source said. “It’s held up really well dollar-neutral.”

Wright unchanged

Wright Medical Group’s convertible bonds were largely unchanged on a dollar-neutral basis, despite a more than 7% jump in stock post-earnings.

“They nuked straight up,” a market source said. “There was no expansion or contraction, which is disappointing.”

The 1.625% convertible notes due 2023 climbed 4.5 points outright to 107.5 during Thursday’s session.

The 2% convertible notes due 2020 climbed about 5 points outright to trade just shy of 111.

The 2.25% convertible notes due 2021 were up about 8 points outright to 147.75.

Wright Medical stock traded as high as $30.75 during Thursday’s session but closed the day at $29.75, an increase of 7.28%.

Wright Medical reported a loss per share of 9 cents in the third quarter versus analyst expectations for a loss of 15 cents.

The company reported revenue of $194.11 versus expectations for revenue of $186.1 million.

News also circulated about a week ago that Wright Medical may be the target of an acquisition, causing market players to keep a close eye on the name, a market source said.

Horizon tanks

While several names saw a boost from their earnings reports on Thursday, Horizon Global was not one of them.

Horizon’s 1.75% convertible notes due 2022 tanked on Thursday with the value of its equity cut in half.

The 1.75% convertible notes slid 14 points to trade at 60. The notes do not trade on hedge, a market source said.

The manufacturer of towing and trailering equipment’s stock was the worst performer on the New York Stock Exchange on Thursday.

Stock closed the day at $2.56, a decrease of 54.61%.

Horizon reported a loss per share of 1 cent for the third quarter versus analyst expectations for earnings per share of 19 cents.

Horizon also missed with revenue of $227.8 million versus analyst expectations for revenue of $237.1 million.

Western Digital flat

Western Digital’s 1.5% convertible notes again saw heavy trading volume on Thursday although with little change in price.

The notes were continuing to trade on an 85 handle. Western Digital stock closed Thursday at $47.56, a decrease of 2%.

With outright accounts who keep their positions until maturity the top holders of the notes, the 1.5% notes previously saw light trading volume.

However, the notes have been major volume movers in recent weeks with stock tanking post-earnings in late October and the data storage company’s senior unsecured credit rating under review.

There appeared to be more sellers in the market, a source said.

Moody’s affirmed Western Digital’s Baa3 senior unsecured rating on Thursday but changed the outlook to negative from stable.

The notes have always traded rich, largely because of their investment-grade rating, but appeared to be trading at fair value at their current level, a market source.

The 1.5% notes will also be dropped from the Thomson Reuters Convertibles Indices on Nov. 14.

Mentioned in this article:

Horizon Global Corp. NYSE: HZN

Ligand Pharmaceuticals Inc. Nasdaq: LGND

Microchip Technology Inc. Nasdaq: MCHP

Omeros Corp. Nasdaq: OMER

Western Digital Corp. Nasdaq: WDC

Wright Medical Group Inc. Nasdaq: WMGI

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