New Orexigen trends toward par; planned RPM deal in focus; GT Advanced, Endologix on tap

By Rebecca Melvin

New York, Dec. 3 - Orexigen Therapeutics Inc.'s newly priced 2.75% convertibles traded up a couple of points early Tuesday, but they trended back toward par with weaker shares in subsequent action, market sources said.

The new Orexigen was seen at 102 bid, 103 offered at the open. Later, they were quoted at 100.875 bid, 101.125 offered versus a share price of $6.01, and last they were heard at 100.5 bid, with no offer, according to a market source.

The San Diego-based biopharmaceutical company's $100 million of the seven-year convertible senior notes priced at the rich end of talk late Monday.

Also in focus in the primary market was RPM International Inc.'s planned $200 million of convertibles, which was expected to price after the market close. That deal wasn't seen as overly cheap, but it was expected to do well due to the fact that convertible paper in this space - specialty chemical products - is scarce.

The market is also expecting a $125 million deal from GT Advanced Technologies Inc., which was slated to price Wednesday. And after the market close, Endologix Inc. launched an offering of $75 million of five-year convertible senior notes that was also seen pricing after the market close Wednesday.

Back in established issues, Alliant Techsystems Inc.'s convertibles were trading. They were quoted at 161.25 versus an underlying share price of $122.44 in early action, which was "roughly where they have been in the last couple of weeks," a New York-based trader said.

Given the current richness of the Alliant bond, the trader predicted that hedge funds would be sellers of the paper and that pricing would "drift down" in the next week or so.

But Cobalt International Energy Inc.'s convertibles, which had faltered on Monday, ended Tuesday wrapped around 91.75, which while lower than Monday's closing market, was improved from a bottom notched earlier Tuesday. Meanwhile Cobalt shares fell another 5.6% after skidding 16.6% on Monday.

"People were stepping in. There were buyers scooping them up," a New York-based trader said of Cobalt.

The trader said that the overall market also seemed to be finding a base.

"I felt like things have been sort of heavy over the last month or so, and now the market is starting to catch a bid," the trader said of Tuesday's action. "Generally I saw a lot of stuff being bid for."

Equities fell. The Dow Jones industrial average lost 94.15 points, or 0.6%, to 15,914.62; the Nasdaq stock market shed 8.06 points, or 0.2%, to 4,037.20; and the S&P 500 stock index gave back 5.75 points, or 0.3%, to 1,795.15.

Orexigen gains on debut

The new Orexigen 2.75% convertibles due 2020 were seen 102 bid, 103 offered at the open. Later, they were quoted 100.875 bid, 101.125 offered versus a share price of $6.01. They were seen last at 100.5 bid, 101.5 offered. Shares ended down 6 cents, or 1%, at $6.12.

Shares were up ahead of the open but slipped lower in early action.

"I didn't see a ton of action in this one," one trader said.

Orexigen priced $100 million of seven-year convertible senior notes late Monday at par to yield 2.75% with an initial conversion premium of 32.5%, according to a syndicate source.

The Rule 144A deal priced at the tight end of talk, which was for a 2.75% to 3.25% coupon and a 27.5% to 32.5% premium.

There is a $15 million greenshoe.

The deal was brought by joint bookrunners BofA Merrill Lynch, Credit Suisse Securities (USA) LLC and Leerink Swann, with Piper Jaffray & Co. acting as a co-manager.

The notes have contingent conversion if shares rise to 130% of the conversion price, and they will be net share settled.

The securities are also non-callable for life, and there is dividend protection via a conversion ratio adjustment and a make-whole adjustment premium in the event of a change of control.

Proceeds will be used for working capital and other general corporate purposes. A portion of the proceeds may also be used to acquire new businesses or products.

San Diego-based Orexigen is a biopharmaceutical company focused on development of treatments of obesity.

Traders expect a pretty decent flow of new issuance to continue until at least the middle of the month. They are keeping their eyes peeled for expected health care and technology names.

RPM looks just OK

RPM International plans to price $200 million of seven-year convertible senior notes after the market close Tuesday. The notes are talked to yield 2.25% to 2.75% with an initial conversion premium of 30% to 35%, according to market sources.

RPM shares shed 72 cents, or 1.8%, to $38.64 on the heels of the convertible deal launch.

One trader said the deal "doesn't model that great."

Using a credit spread of 110 basis points over Libor and a 17% vol., the deal looks to have fair value at 100.9 at the midpoint of talk.

The registered deal has a $5 million greenshoe and is being sold via joint bookrunners Wells Fargo Securities LLC and Goldman Sachs & Co.

The notes have contingent conversion if the company's shares rise to 135% of the conversion price.

The securities are non-callable until Dec. 20, 2017 and then are provisionally callable if the shares rise to 125% of the conversion price. There is takeover protection.

Proceeds will be used to repay, redeem or refinance the company's $200 million of 6.25% unsecured senior notes due Dec. 15, 2013, with remaining proceeds to invest in high-quality, short-term investments.

Mentioned in this article:

Alliant Techsystems Inc. NYSE: ATK

Cobalt International Energy Inc. NYSE: CIE

Endologix Inc. Nasdaq: ELGX

GT Advanced Technologies Inc. Nasdaq: GTAT

Orexigen Therapeutics Inc. Nasdaq: OREX

RPM International Inc. NYSE: RPM

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