Onyx, Rayonier price rich, jump; D.R. Horton up with sector; Cubist gets pre-conference boost

By Kenneth Lim

Boston, Aug. 7 - Newly printed convertible paper got off to a strong start Friday on perceived cheapness and an equity rally.

Onyx Pharmaceuticals, Inc. and Rayonier Inc. traded several points above par on their debuts after pricing their deals beyond the rich end of price talk.

D.R. Horton Inc. followed its stock higher, buoyed by positive research and renewed enthusiasm about the homebuilding sector.

Cubist Pharmaceuticals, Inc. also improved ahead of a company presentation at an investor conference in the coming week.

The market in general had an active session "for a summer Friday," a sellside desk analyst said.

The week saw distressed and high yield names continue to improve, following the trend of previous weeks. But actual volumes remained thin with buyers outnumbering sellers.

"Sort of more of the same in that some of the distressed paper has just been very aggressively bid up," the analyst said. "But nobody wants to sell anything."

Onyx jumps on debut

Onyx Pharmaceuticals' new seven-year convertible senior notes shot up to 107.5 versus a common stock price of $32 early Friday after the $200 million deal priced richer than talk.

The notes were sold at par. The stock closed at $32.25, up by 5.15% or $1.58.

The deal priced with a coupon of 4% and an initial conversion premium of 30%. Price talk was at a coupon of 4% to 4.5% with an initial conversion premium of 20% to 25%.

Bookrunner Goldman Sachs & Co. has an over-allotment option for an additional $30 million in the registered offering.

A concurrent public offering of 4 million common shares priced at $30.50 apiece. There is a greenshoe of 600,000 shares on the stock offering.

Proceeds will be used to build and diversify the company's pipeline of in-licensing product candidates, for strategic investments and acquisitions, fund clinical trials, sales and marketing and for general corporate purposes.

Onyx is an Emeryville, Calif.-based biopharmaceutical company that focuses on cancer treatments.

"It was a 4% coupon, which is reasonable under the circumstances, and senior notes, which is good," said Thomas H. Dinsmore, chief executive officer of Dinsmore Capital Management. "Often these come as subordinated debentures, so senior is helpful. You like being up the capital structure a little bit. It matures in 2016, which is a little longer than we've been seeing."

Dinsmore, who looked at the new offerings as an outright manager, said the deal was "appropriately priced," although the initial conversion premium ended higher than he liked.

"The 30% premium I'm not happy with," he said. "But I'm old school and to me anything above 25 is a bad start."

The company has a very healthy balance sheet after the fundraising, Dinsmore noted.

"They've got quite a bit of flexibility with that balance sheet," he said, adding that the company's plan to spend on boosting its pipeline is par for the course. "Frankly that's the way the market's going for companies like this."

Rayonier shoots higher

Rayonier's new 4.5% exchangeable senior notes due 2015 climbed quickly once it hit the secondary market, trading at 105.5 versus a common stock price of $41.50 on Friday.

The notes were offered at par. The common stock gained 2.71% or $1.11 to close at $42.12.

Rayonier's older 3.75% convertibles due 2012 gained about a point outright to trade at 101 versus a $42 stock price.

The $150 million deal priced with an initial exchange premium of 22.5% on Thursday after the close. Price talk was at a coupon between 4.75% and 5.25% with an initial exchange premium of 17.5% to 22.5%.

There is an over-allotment option for an additional $22.5 million.

The bookrunners are Credit Suisse, JPMorgan and Merrill Lynch in the Rule 144A deal.

Proceeds will be used to repay debt and to fund exchangeable note hedge and warrant transactions.

Rayonier is a Jacksonville, Fla.-based forest products company.

The Rayonier deal also looked fairly priced, Dinsmore said. The new Rayonier paper filled a "fairly empty sector" in the convertibles universe, and it also had the benefit of having an existing note outstanding.

"It's pari passu with the other convertible that's outstanding," Dinsmore said. "I love it when that happens. Then you can make a choice between the two. Right now the new one is more attractive than the other."

D.R. Horton follows sector higher

D.R. Horton's 2% convertible due 2014 rose about 5 points outright in line with its common stock after the homebuilding sector rallied on Friday.

The convertible traded at 121.5 against a common stock price of $13.25. The stock was up 7.81% or $0.98 for a $13.52 close.

"Homebuilders did really well today because Beazer Homes reported smaller losses. That's yet another homebuilder that's reporting good earnings," a sellside trader said. "Plus job numbers were better than expected. It's hard to find something that didn't do well today."

D.R. Horton is a Fort Worth, Texas-based homebuilding company.

The company, which reported narrower third-quarter losses earlier in the week, was also upgraded by Goldman Sachs and added to the dealer's Conviction Buy list.

Cubist moves ahead of conference

Cubist's 2.25% convertible due 2013 was quoted slightly higher Friday at 92.5 versus a $20 common stock price as the stock edged up ahead of a company presentation.

The common stock closed at $20.44, up by 3.39% or $0.67.

Cubist is a Lexington, Mass.-based drug developer.

The company's executive vice president and chief operating officer Robert Perez is expected to present on Cubist's business and outlook Aug. 12 at the Canaccord Adams Global Growth Conference in Boston.

Mentioned in this article:

Cubist Pharmaceuticals, Inc. Nasdaq: CBST

D.R. Horton, Inc. NYSE: DHI

Onyx Pharmaceuticals, Inc. Nasdaq: ONXX

Rayonier Inc. NYSE: RYN

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