New Microchip flat to higher in gray market, old bonds active; Twitter adds ahead of earnings

By Rebecca Melvin

New York, Feb. 5 – Microchip Technology Inc.’s new and old convertibles were a primary focus of Thursday’s trading session ahead of the pricing of the Chandler, Ariz.-based semiconductor maker’s $1 billion new deal expected after the market close.

The new Microchip convertible, which was talked at a 1.625% to 2.125% coupon and 37.5% to 42.5% premium, was quoted around issue in the gray market and also at par to plus 0.5 point, market sources said.

Microchip’s existing 2.125% convertibles due 2037, which the company plans to redeem with proceeds of the new deal, jumped on an outright basis in active trading. But they looked flat to a little better on a parity basis.

A second, much smaller deal was also in the market, but it wasn’t heard in the gray market. Immunomedics Inc.’s planned $85 million of five-year notes was still on tap for late Thursday, a syndicate source said, despite an 18% slide in the shares of the Morris Plains, N.J.-based biopharmaceutical company.

Elsewhere, Twitter Inc.’s convertibles were up a little ahead of its widely-anticipated quarterly earnings report. After the close, the San Francisco-based social media company posted quarterly earnings that were better than expected and its shares jumped in after-hours action. But monthly active-user growth was lower than expected.

Tesla Motors Inc.’s convertibles were also trading and a little higher. The Tesla As made up ground lost to the B tranche on Wednesday. That action put both issues on equal footing, or up 0.25 point to 0.375 point over the last two days, a New York-based trader said.

Overall, the market tone was quiet and neutral, the trader said.

After the market close, Seattle-based biopharmaceutical company Oncothyreon Inc. announced that it intends to price convertible preferred stock and common stock in concurrent public offerings.

Jefferies LLC is sole bookrunner of the series B convertible preferred shares.

Details on the deal’s size, pricing and timing weren’t immediately available.

Oncothyreon priced $20 million of series A convertible preferred stock, or 10,000 shares at $2,000 each, in a private offering in September.

Equities and oil prices were both up strongly. The S&P 500 stock index added 21 points, or 1%, to 2,062.52, and West Texas intermediate crude oil for March delivery climbed $2.37, or nearly 5%, to $50.82.

New Microchip flat to higher

Microchip’s $1 billion of 10-year convertible bonds were quoted at issue and also at par bid, 100.5 offered in the gray market ahead of final terms being fixed on Thursday.

That pricing looked below what some valuations had indicated in terms of prospects for the bond in the secondary market.

The deal was looking cheap using a credit spread of 400 basis points over Libor and 20% vol., a Connecticut-based trader said. Using those inputs at the midpoint of talk, the deal was worth 103.1, he calculated.

But a second source said that a 400 bps credit spread was too wide. He also said that the underwriters had gone out with a spread on the deal of 425 bps, which he obviously considered wide.

The convertibles were talked to yield 1.625% to 2.125% with an initial conversion premium of 37.5% to 42.5%, according to market sources.

The Rule 144A offering has an over-allotment option for $150 million of additional notes and was being sold via joint bookrunners J.P. Morgan Securities LLC and Wells Fargo Securities LLC, with passive bookrunners BofA Merrill Lynch, BMO Capital Markets Corp., HSBC Securities (USA) Inc. and U.S. Bank.

The notes are non-callable with no puts except a takeover put.

Proceeds will be used to retire a portion of the company’s outstanding convertibles currently with the pricing of the new deal. Remaining proceeds will be used to reduce borrowings under its credit facility, which was amended on Wednesday.

Old Microchips flat to higher

The existing Microchip convertible, a 2.125% bond due 2037, traded up 5 points or 6 points to 190, according to Trace data. On a parity basis, one source said it was unchanged, and a second source said that the bonds were at parity plus 1 point, up from parity plus 0.5 point bid on Wednesday.

Proceeds of the new deal are being used to take out the older issue, of which there is $1.15 billion outstanding.

It wasn’t clear whether the bond would be redeemed for cash or converted into shares, sources said.

Immunomedics shares plunge

Immunomedics’ planned $85 million of five-year convertibles was seen pricing late Thursday, a syndicate source said. There had been no change in the deal size or price talk.

Immunomedics launched the new deal together with its quarterly earnings report, which revealed a better-than-expected loss for its fiscal second quarter of $11.4 million, or 12 cents per share.

Analysts were expecting a loss of 13 cents per share.

Revenue was $1 million for the latest period.

Shares opened sharply lower and traded weaker from there, ending down 88 cents, or 18%, at $4.01.

Twitter adds before earnings

Twitter’s 0.25% convertibles due 2019, or the A tranche, was seen at the close at about 93, which was higher by about a point outright basis, according to Trace data.

The bond trades on a 40% delta.

The Twitter 1% traded a tick below that at 92.75 to 93. The longer-dated notes trade on a 50% delta.

Twitter shares were up 54 cents, or 1.3%, during the session at $41.26. The company’s shares bumped up higher in after-hours trading.

Twitter reported a narrower loss of $125.4 million for its fourth quarter, compared to a $511.5 million loss for the year-earlier period.

Excluding items, the company posted profit of 12 cents a share, which was double what analysts had been expecting.

Revenue was $479.1 million, which was better than the $453.6 million that analysts expected.

But monthly active users rose a less-than-expected 20% to 288 million, compared to 23% growth in the prior period and slower than the 22% growth of users that analysts had expected.

Mentioned in this article:

Immunomedics Inc. Nasdaq: IMMU

Microchip Technology Inc. Nasdaq: MCHP

Oncothyreon Inc. Nasdaq: ONTY

Tesla Motors Inc. Nasdaq: TSLA

Twitter Inc. Nasdaq: TWTR

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