Isis pops on debut; older paper slips again; new Hornbeck adds; Tyson comes 'in' slightly

By Rebecca Melvin

New York, Aug. 8 - Isis Pharmaceuticals Inc.'s newly priced 2.75% convertibles traded up by more than 6 points on their debut in the secondary market on Wednesday after the new issue priced at the targeted terms following tightening of price talk during marketing.

The old Isis convertibles, which are expected to be called, traded down again by about 0.5 point to 101.5 bid, 101.875 offered.

"The old ones are toast," a West Coast-based trader said.

Hornbeck Offshore Services Inc.'s newly priced 1.5% convertibles also traded up on their debut Wednesday, but not as dramatically as the Isis issue, after the new convertible priced at the rich end of talk.

Both deals performed "awesome" and "way better than my expectations," according to one trader.

Meanwhile, the market sized up the new Exelixis Inc. deal, which was getting mixed to negative reactions from market players ahead of pricing expected after the market close.

There was no gray market reported in the planned Exelixis deal, which was seen pricing within the talked range for terms and at the deal size that underwriters went out with initially on Monday.

Also in the primary market, Prospect Capital Corp. launched an offering of $200 million of convertible notes due 2018 after the market close that were expected to price preopen to yield 5.75% with an initial conversion premium of 10%, according to a syndicate source.

Back in the secondary market, Tyson Foods Inc. came "in" a little as the underlying shares of the Springdale, Ark.-based meat processor bounced following a big drop on reduced guidance on Monday.

New Isis dazzles on debut

The new Isis 2.75% convertible due 2019 jumped to 105 out of the chute on Wednesday, and was 106.375 bid. 106.875 offered versus an underlying share price of $12.60 shortly before the market close. That was a 5.5 point or better gain on a dollar-neutral, or hedged, basis, market sources said.

Shares of the Carlsbad, Calif.-based drug maker ended up by 5 cents to the $12.60 level after trading actively.

The deal's $26.25 million over-allotment option was exercised concurrently with the original $175 million base deal.

"My best guess is they had a strong outlook book, rolling holders of the 2.625% notes into the new," a trader said.

During marketing, price talk on Isis' planned $175 million of seven-year convertible notes was tightened to 2.75% with an initial conversion premium of 32.5%. That pricing was more aggressive than talk initially for a 3% to 3.5% coupon and a 27.5% to 32.5% premium.

Goldman Sachs & Co. and J.P. Morgan Securities LLC were the joint bookrunners, with co-managers Stifel Nicolaus & Co. Inc., BMO Capital Markets Corp. and Needham & Co. LLC.

The notes are non-callable until Oct. 5, 2016 and then are provisionally callable subject to a 130% price hurdle. There are no puts, but the paper has takeover and dividend protection.

Proceeds will be used to repay the company's 2.625% convertibles due 2027.

Hornbeck adds on debut

Hornbeck's newly priced 1.5% convertibles ended the session around 103 bid, 103.75 offered versus the closing $39.94 price of the underlying shares, according to a syndicate source.

The paper opened up at 102.75 and traded late in the day at 102.625 bid, 103.125 offered, a market source said.

Shares of the Covington, La.-based oil services company edged up 78 cents, or 2%.

The $260 million of seven-year convertible notes opened up a couple of points," according to one trader, but while the performance was admirable, it wasn't as stellar as the new Isis deal.

"It's been active; it's just not as exciting," compared to the Isis deal, a trader said.

Hornbeck's existing 1.625% convertibles due 2026 are being retired with proceeds of the new deal.

The new, non-callable paper came at par with a 37.5% initial conversion premium, representing pricing at the rich end of talk.

The deal came with a call spread, which boosts the effective premium from the issuer's perspective to 75%. The initial strike price of the warrants is $68.53 per share.

There is a $40 million over-allotment option for the Rule 144A deal, which was sold via bookrunners Barclays, JPMorgan and Wells Fargo Securities LLC.

Exelixis has issues

Exelixis' plans to price $225 million of seven-year convertible senior notes after the market close Wednesday were unchanged, according to a syndicate source at the close.

Price talk was also unchanged at 3.75% to 4.25% for the coupon and 25% to 30% for the initial conversion premium shortly before the end of the session.

"Borrow is a little tough on EXEL," a trader said. Meanwhile, the stock has been torched since the deal was announced and is down 22% since Friday, he said.

Still, that "probably works OK since the stock guys are beating up the stock, some outrights may come in, the trader said.

Shares of the South San Francisco, Calif.-based biotechnology company fell 30 cents, or 6.5%, to $4.28 in heavy volume on Wednesday.

As for valuation of the deal, the trader said that using a credit spread of 1,000 basis points over Libor, 45% vol. and 2% price tag on the stock borrow, gets the paper at fair value at 100.3.

"Not enough juice on a long-dated biotech," the trader said. "I'd pass."

A second trader said he put the deal 2.5% cheap at the midpoint of talk, using different inputs. He noted that the notes are coming with a concurrent stock deal so maybe that frees up the stock borrow.

There is $33.75 million greenshoe for the registered offering that was being sold via bookrunner Goldman Sachs with Cowen and Co. as joint lead manager and co-managers Citigroup Global Markets Inc., Credit Suisse Securities (USA) Inc. and Morgan Stanley & Co. LLC.

Concurrently with the note sale, the company is offering 20 million shares of common stock, or 24 million shares if the over-allotment option is exercised.

The notes are non-callable until Aug. 15, 2016, and there is a takeover put. There is contingent conversion at a price hurdle of 130%.

Tyson Foods comes in a little

Tyson's 3.25% convertibles due 2013 traded at 111 near the end of the session, according to Trace data.

That level was up 4 points outright but a little lower on a dollar-neutral basis given that shares of the Springdale, Ark.-based meat processor jumped $1.20, or 8%, to $15.97.

Shares had dropped 8% on Monday to $14.17 after the company cut its full-year sales forecast and said profit will be lower due to drought-induced higher feed costs.

The company said that revenue will be $33 billion for the year through September, compared to a previous forecast of $34 billion.

"Tyson traded; it looked like they came in a bit to me, but that one has ripped over the past three weeks," a New York-based trader said.

"Our beef and port segments have been operating in very difficult market conditions that will result in our earnings for fiscal 2012 coming in lower than we previously projected," chief executive officer Donnie Smith said in a statement.

Hot weather and drought has harmed crops in the U.S. Midwest. Parts of Iowa and Illinois had less than 25% of normal rain in the last few weeks, and only 24% of corn was in good or excellent condition on July 29, according to reports.

Mentioned in this article:

Exelixis Inc. Nasdaq: EXEL

Hornbeck Offshore Services Inc. NYSE: HOS

Isis Pharmaceuticals Inc. Nasdaq: ISIS

Tyson Foods Inc. NYSE: TSN

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