Convertibles primary returns to action; Insmed, LCI, Dynavax, ON Semiconductor on deck

By Abigail W. Adams

Portland, Me., May 10 – After a week-long hiatus, the convertibles primary market returned to action on Monday with four deals totaling $1.8 billion on deck.

ON Semiconductor Corp. plans to price $700 million of six-year convertible notes after the market close on Tuesday with price talk for a fixed coupon of 0% and an initial conversion premium of 40% to 45%, according to a market source.

BofA Securities Inc., Morgan Stanley & Co. LLC and Citigroup Global Markets Inc. are bookrunners for the Rule 144A offering, which carries a greenshoe of $105 million.

LCI Industries plans to price $400 million of five-year convertible notes, Dynavax Technologies Corp. plans to sell $200 million of five-year convertible notes, and Insmed Inc. plans to price $500 million in seven-year convertible notes after the market close on Monday.

While the deals continued to model cheap based on underwriters’ assumptions, sources had mixed opinions about the offerings.

Meanwhile, it was a heavy day in the secondary space as the rotation into value stocks from growth stocks continued.

The Dow Jones industrial average set a fresh record early in the session.

However, selling pressure pushed the index into negative territory late in the session with all three major benchmarks closing the day in the red.

After climbing more than 200 points early in the session, the Dow closed the day down 33.36 points, or 0.10%, the S&P 500 index closed the day down 1.04% and the Nasdaq composite finished down 2.55%.

While the overall market was heavy, trading volume was light with less than $300 million in reported volume about two hours before the market close.

“People are probably going through their portfolio trying to figure out what they want to sell and keep,” a source said.

LCI notes on tap

LCI Industries plans to price $400 million of five-year convertible notes after the market close on Monday with price talk for a coupon of 0.75% to 1.25% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of 300 basis points over Libor and a 35% vol., according to a market source.

Using those assumptions, the deal looked 2.75 points cheap at the midpoint of talk.

However, the vol. assumption was a “little stretched,” a source said.

The company is a leading supplier of component pieces to the RV industry.

While the RV industry was one of the benefactors of the economic shutdown, some sources questioned how profitable the business would be going forward as travel patterns return to normal.

LCI’s stock was taking a hit during Monday’s session. Stock closed the day at $129.92, a decrease of 11.28%.

Dynavax eyed

Dynavax Technologies plans to sell $200 million of five-year convertible notes after the market close on Monday with price talk for a coupon of 2% to 2.5% and an initial conversion premium of 30% to 35%, according to a market source.

The deal was marketed with assumptions of 750 bps over Libor and a 42% vol., according to a market source.

Using those assumptions, the deal looked about 2 points cheap at the midpoint of talk.

With only one product in the Emeryville, Calif.-based biotechnology company’s pipeline, the deal was a gamble.

“It’s a binary event,” a source said. “The drug will either get approved or it won’t.”

Insmed’s refinance

Insmed plans to bring $500 million of seven-year convertible notes after the market close on Monday with price talk for a coupon of 0.5% to 1% and an initial conversion premium of 25% to 30%, according to a market source.

The deal was heard to be in the market with assumptions of 400 bps over Libor and a 40% vol. Using those assumptions, the deal looked 3.65 points cheap at the midpoint of talk.

However, several sources felt the credit spread was tight.

“That’s very aggressive for a biotech,” one source said.

Another source pegged assumptions at 600 bps over Libor and a 45% vol., which modeled out to 0.42 point cheap at the midpoint of talk.

While even a 600 bps credit spread is aggressive for a biotech company, Insmed does have cash on the balance sheet, is retiring some of its outstanding debt with proceeds from the new offering and is raising additional capital through an equity offering, the source said.

In a concurrent offering, the company plans to price $250 million of common stock.

Proceeds from the convertible notes offering will be used, in part, to repurchase a portion of the company’s 1.75% convertible notes due 2025 in privately negotiated transactions.

The repurchase of the 1.75% convertible notes was helping to drive demand for the new offering with holders more concerned about negotiating a good price of the 1.75% notes than the pricing of the new offering, a source said.

The 1.75% notes were trading around 111 heading into Monday’s session, according to Trace data.

Insmed’s stock was taking a hit on the heels of its latest offering.

Stock closed the day down $6.59 to $25.99, a decrease of 20.23%.

Mentioned in this article:

Dynavax Technologies Corp. Nasdaq: DVAX

Insmed Inc. Nasdaq: INSM

LCI Industries NYSE: LCII

ON Semiconductor Corp. Nasdaq: ON

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