Omeros prices; Finisar up, II-VI contracts on merger; Aegean bankruptcy financing OK’d

By Abigail W. Adams

Portland, Me., Nov. 9 – The convertibles primary market broke its silence on Friday and priced a new deal, ending a two-week drought.

In an overnight deal, Omeros Corp. priced $210 million of five-year convertible notes prior to the market open on Friday.

The tightly allocated deal was slow to trade in the secondary space as the biopharmaceutical company’s stock got crushed, sources said.

While the earnings season blackout, market volatility, U.S. midterm elections and a Federal Reserve meeting stifled new deal activity over the past few weeks, there are several deals in the pipeline with the Nov. 12 week expected to be an active one, provided markets hold, sources said.

Friday was a soft day for the convertibles space with equity markets again tumbling and the energy sector again under pressure as crude oil futures continued their decline.

“Today is the first day people really seem to be heading for the hills,” a market source said. Convertible notes were trading to bid throughout the session.

Finisar Corp. and II-VI Inc.’s convertible notes were in focus in the secondary space after II-VI announced it would acquire Finisar in a $3.2 billion cash and stock deal.

Finisar’s convertible notes were making gains on the news while II-VI’s convertible notes contracted.

Aegean Marine Petroleum Network Inc.’s default on its 4% convertible notes, which matured on Nov. 1, pushed the company to file for Chapter 11 bankruptcy earlier in the week, causing its 4.25% convertible notes due 2021 to crater.

While convertible holders were organizing to oppose a bankruptcy financing package, the package received court approval on Friday.

After rallying mid-week, the 4.25% convertible notes were again trading down on Friday.

Omeros tightly held

Omeros emerged as the first company to price a convertible notes offering since volatility roiled capital markets in the final weeks of October.

Omeros priced $210 million of five-year convertible notes at par with a coupon of 6.25% and an initial conversion premium of 20% prior to the market open.

Pricing came in line with talk for a fixed coupon of 6.25% and at the cheap end of talk for a premium of 20% to 25%, according to a market source.

The deal was a “tightly held wall crossed deal,” a market source said. The new paper was not seen trading early in Friday’s session.

While still slow to trade in the afternoon, the new notes were seen at 98 bid, par offered versus a stock price of $13.00.

Omeros stock took a beating on Friday as investors responded to the convertible notes offering.

Stock was down as much as 22% in intraday trading and closed the day at $13.02, a decrease of 18.73%.

The majority of the notes were put up on hedge, a source said.

The deal came with a call spread with a cap price of $28.8360, representing a premium of 80%.

Proceeds from the offering will be used to retire the secured term loan agreement with CRG Servicing LLC, which has an interest rate of 12.25%.

With the term loan retired, the convertible notes will be the only debt in the biopharmaceutical company’s capital structure, a market source said.

The buyout

Finisar and II-IV’s convertible notes were in focus in the secondary space after II-VI announced it would acquire Finisar in a $3.2 billion cash and stock deal.

“That’s the excitement today,” a market source said.

Finisar’s 0.5% convertible notes due 2036 jumped 7 points outright to 96 as stock soared on the news.

The notes were lightly hedged, a market source.

However, the notes were trading up based on their change-of-control covenant. Assuming the deal closes in June 2019, the notes will yield 6.31%.

The internal rate of return is about 14%, a market source said.

The optical communications product manufacturer’s 0.5% convertible notes due 2033 were less active. The notes were up about 25 cents outright to 99.80.

Finisar stock popped more than 17% early in Friday’s session and closed the day at $21.79, an increase of 15.41%.

II-VI’s 0.25% convertible notes due 2022 were down on both an outright and dollar-neutral basis following the announcement.

The notes traded down to 105 on an outright basis after closing Thursday at 116. “Ouch,” a market source said.

They were contracted about 0.75 point on a dollar-neutral basis. The notes were trading on a 65% to 70% delta, a market source said.

The laser and optical components maker’s stock sank, closing the day at $38.01, a decrease of 18.92%.

The sell-off was sparked by the additional debt II-VI plans to take onto fund the acquisition.

The $3.2 billion deal will be financed by $2 billion in new debt underwritten by BofA Merrill Lynch and $1.4 billion in equity issued to Finisar shareholders, according to II-VI’s investor presentation.

The deal is expected to close in the middle of 2019.

However, there are risks involved, a market source said.

The deal is subject to shareholder and regulatory approvals, which includes approval from China’s regulatory authority.

Qualcomm’s planned acquisition of NXP Semiconductors NV was terminated after failing to gain approval from China.

The bankruptcy

Aegean Marine Petroleum’s 4.25% convertible notes due 2021 cratered 50 points to 10 on Tuesday after the fuel supplier filed for Chapter 11 bankruptcy due to the default on the notes.

The 4% notes, which had $128.5 million outstanding, matured on Nov. 1.

The notes staged a rebound on Wednesday and Thursday as convertible bondholders organized to oppose a financing package that would have ‘primed out’ the notes, or pushed them lower in the company’s capital structure, a market source said.

However, the financing package was approved on Friday with the company given a nod of approval to borrow up to $40 million of a $72 million term loan.

The 4.25% convertible notes traded up to 18.75 on the news. However, they gave back some of their gains to trade at 17.5 on Friday.

Mentioned in this article:

II-VI Inc. Nasdaq: IIVI

Aegean Marine Petroleum Network Inc. OTCMKTS: ANWWQ

Finisar Corp. Nasdaq: FNSR

Omeros Corp. Nasdaq: OMER

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