Planned SunEdison seen cheap; existing SunEdisons finish unchanged; Depomed drops outright

By Rebecca Melvin

New York, May 12 – U.S. convertibles players viewed SunEdison Inc.’s two $375 million tranches of convertible senior notes as fairly cheap ahead of final terms expected to be fixed after the market close.

The new deal “should be popular with investors,” a Connecticut-based sellsider said. “I get them 2% to 3% cheap.”

SunEdison’s four existing convertible issues were pulled into trade and moved in tandem, or in line, with the underlying shares, a syndicate source said.

“They were all pretty much unch’d,” the source said.

Back in established issues, Depomed Inc.’s 2.5% convertibles due 2021 tumbled on an outright basis, dropping nearly 17 points to 125.75 on a 16% drop in the underlying shares after disappointing earnings.

The Newark, Calif.-based specialty pharmaceutical company reported quarterly results that missed expectations and guided full-year revenue in line with expectations.

Also dropping on an outright basis were the 2.75% convertibles of Orexigen Therapeutics Inc. after the San Diego-based biopharmaceutical company announced together with Takeda Pharmaceutical Co. Ltd. that their cardiovascular study (Light Study) of its Contrave obesity drug has been terminated due to concerns that interim data that was released in March may compromise decisions regarding whether to prescribe and take the diet drug.

Orexigen has started a similar study that will produce the same type of data but at a later date.

Orexigen’s 2.75% convertibles due 2020 were indicated down at 101 from about 108.5 previously. Orexigen shares fell 93 cents, or 13.6%, to $5.93.

Internationally, French oil concern Maurel & Prom SA launched and priced €115 million of six-year convertible bonds that came toward the rich end of talked terms. The talked terms were for a 2.5% to 3.25% coupon and 32% to 39% premium.

Assuming a credit spread of 500 basis points over Libor and a 28% vol., the Maurel & Prom deal looked to have a fair value of 100.39 at the rich end of talk.

Also in Europe, Salvepar SA priced €150 million of 6.5-year convertible bonds at par to yield 1.625% with an initial conversion premium of 37.5%, which represented the cheap end of talked terms. The Salvepar deal was launched last week.

Existing SunEdisons unchanged

SunEdison’s existing 2.375% convertibles due 2022, of which $460 million priced on Jan. 21, 2015, traded a couple of times on one trading desk and were quoted at 130.625 at late morning.

SunEdison’s 0.25% convertibles due 2020, of which $600 million priced June 4, 2014, were not heard in trade.

In addition, SunEdison is changing two issues into shares, including SunEdison’s 2% convertibles due 2018, of which $600 million priced Dec. 12, 2013, and SunEdison’s 2.75% convertibles due 2021, a second tranche of $600 million that also priced Dec. 12, 2013.

The SunEdison 2% convertibles traded at 199.511, according to Trace data.

Shares of the St. Peters, Mo.-based solar technology company came off $1.14, or nearly 4%, to $27.61. They were off only 37 cents, or 1.3%, at $28.38 in the early going.

SunEdison’s old issues flat

SunEdison’s newest offering of convertibles is a Rule 144A deal of $750 million of convertible senior notes in two tranches, which were seen 2% to 3% cheap.

The $375 million of eight-year notes were talked at a 2.625% to 3.125% coupon and a 32.5% to 37.5% initial conversion premium.

The $375 million of 10-year notes were talked at a 3.375% to 3.875% coupon and a 32.5% to 37.5% premium.

Both tranches are non-callable with no puts.

Active bookrunners are Deutsche Bank Securities Inc., Barclays, Morgan Stanley & Co. LLC and Goldman Sachs & Co. But the list of bookrunners also included BBVA, Citigroup, Credit Suisse, KeyBank Capital Markets, Macquarie Capital, RBC Capital Markets and Wells Fargo Securities.

Settlement is for cash or a cash-and-stock combination.

There is dividend protection via a conversion rate adjustment and takeover protection.

Proceeds are expected to be used to fund M&A to enhance size and value of a future emerging market vehicle, to create a warehouse facility to acquire and hold operating assets for future dropdowns, to fund the cost of the capped call transactions, to optimize materials business, to retire debt and for other general corporate purposes.

In connection with the deal, the company plans to enter into capped call transactions with initial purchasers of the bonds. The capped call will be used to establish initial hedge positions.

St. Peters, Mo.-based SunEdison makes solar technology and develops, finances, installs and operates distributed solar power plants. The company has other convertible bond issues.

Depomed drops sharply

Depomed’s 2.5% convertibles due 2021 traded intraday at 125.722, which was down 18.8 points, according to Trace data. The convertibles were indicated even lower at the end of the session at about 123.5 to 124, which was down from a previous level of 142.

Depomed shares fell $3.98, or 16%, to $20.43 in heavy volume.

“I heard they had a bad earnings report,” a market source said.

Depomed reported a net loss of $11.6 million, or 20 cents per share, for the period ended March 31, compared to a profit or $17.9 million in the year-earlier period. Excluding items, Depomed reported a loss of $8 million, or 13 cents per share, compared to a loss of $785 million, or a penny, in the year-earlier period.

Maurel & Prom prices

The Maurel & Prom deal looked cheap at the midpoint of talk. Assuming a credit spread of 500 bps over Libor and a 28% vol., the deal looked to have a fair value of 103.13 at the midpoint of talk, according to a market source.

In fact, the deal priced toward the rich end of talked terms, and fair value at the rich end of terms was about 100.

Maurel & Prom priced €115 million of six-year convertible bonds at par to yield 2.75% with an initial conversion premium of 37%. Natixis was the bookrunner.

The bonds are non-callable until Feb. 1, 2019 and then are provisionally callable if the company’s shares trade above 130% of the conversion price.

There is dividend and takeover protection.

Proceeds will be used to repurchase Maurel & Prom’s 2015 convertible bonds due in July with about €68.65 million outstanding.

Mentioned in this article:

Depomed Inc. Nasdaq: DEPO

Maurel & Prom SA Paris: MAU

Orexigen Therapeutics Inc. Nasdaq: OREX

Salvepar SA Paris: SY

SunEdison Inc. Nasdaq: SUNE

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