Medicines adds on hedge in busy trade; Resource Capital slips from discounted offer price

By Rebecca Melvin

New York, Jan. 8 – The Medicines Co.’s newly priced 2.5% convertibles traded up on Thursday after the Parsippany, N.J.-based health care company priced an upsized $350 million of the seven-year senior notes at the rich end and midpoint of talked terms.

The bond appealed to market players because it’s a health care name, the vol. is good and it carries a “decent” coupon.

“It’s a hot sector, the stock is volatile, and it has a decent coupon considering the Treasury rate,” a New York-based source said.

The new bond was seen around 102 with the underlying shares at about $24.90. Medicines’ older convertible bonds also “held their own” after coming in a little bit on Wednesday, the source said.

But Resource Capital Corp.’s newly priced 8% convertibles traded down to 98.25, according to Trace data, after being offered at a discount to par of 99. The deal for $100 million of five-year notes priced beyond the cheap end of initial talk for a 7% to 7.5% coupon.

It didn’t do well, sources said, because it’s a sector that is out of favor.

“There is too much REIT paper in the convert universe,” a New York-based trader said, referring to real estate investment trusts.

Market players were also sizing up a $500 million deal that Brocade Communications Systems Inc. launched late Wednesday. But no color on this deal emerged ahead of terms being fixed. Brocade shares added 39 cents, or 3.4%, to $11.80 during the session.

The overall convertibles market saw a jump in volume on Thursday. There was $663 million of bonds that traded as of 3 p.m. ET, according to Trace data. That amount understates total market activity as it doesn’t account for trading of many financials, mandatory convertibles and convertible preferreds. Nevertheless, the amount reported was significantly higher than reported volume in recent sessions.

One trader said that many rate-sensitive names were up in what he thought was a delayed response to recent strength in U.S. Treasuries and weaker rates.

“Things are getting a bid,” he said.

U.S. Treasuries came off a little from Wednesday with the yield on the 10-year note gaining 6 basis points to 2.01%.

A second New York-based trader said that overall there was a “slightly weaker tone” to Thursday’s convertibles market.

American Energy – Permian Holdings LLC’s 8% exchangeable junior subordinated notes were seen down at 75 from 85, according to a market source.

In addition, Insulet Corp.’s 2% convertibles tumbled to 111 from 116 in tandem with lower shares after the Bedford, Mass.-based medical device maker guided lower for fourth-quarter earnings and the company’s chief commercial officer resigned. Insulet shares fell 9% to $40.52.

In the broader markets, equities surged for a second straight day, pushing the S&P 500 index into positive territory for the year. The S&P closed up 36.24 points, or 1.8%, to 2,062.14. The Dow Jones industrial average surged 323.35 points, or 1.8% to 17.907.87 and the Nasdaq stock market gained 85.72 points, or 1.8%, to 4,736.19.

Meanwhile, the price of West Texas Intermediate crude oil for February delivery rose 0.7% to $49.00.

New Medicines adds

Medicines’ new 2.5% convertibles due 2022 were quoted last at 102 with the underlying shares at $24.90 near the end of a very active debut for the new issue on Thursday.

Early in the session the new bonds changed hands at 101.75, according to Trace data, with shares higher, and also at 101.375 with the underlying shares back near the flat line.

The bonds were seen to have expanded on a hedged basis by about a point, a New York-based trader said.

Medicines shares fluctuated, but ended the session up 5 cents, or 0.2%, at $24.84.

“They are holding up pretty well,” a New York-based trader said.

Medicines’ existing 1.375% convertibles traded up to 112, which was up 2 points, according to Trace data.

“They are holding their own,” the trader said of the older Medicines. He said they “came in small” earlier but had subsequently traded well.

Medicines boosted its base deal size by $50 million to $350 million at the time of pricing, and the coupon came at the low end, or rich end, of the talked range, while the initial conversion premium came at the midpoint of 10% to 15% talk.

Joint bookrunners were Goldman Sachs & Co., Citigroup Global Markets Inc. and J.P. Morgan Securities LLC.

The notes are non-callable until Jan. 15, 2019 and then provisionally callable if shares exceed 130% of the conversion price. There are no investor puts, and the bonds mature Jan. 15, 2022. They will be net share settled.

Proceeds are earmarked for general corporate purposes.

New Resource Capital down

Resource Capital’s newly priced 8% convertibles traded down to 98.25, according to Trace data, after being offered at a discount to par of 99. The deal was for $100 million of five-year notes that priced beyond the cheap end of initial 7% to 7.5% coupon talk.

“They were not received too well,” a New York-based trader said of the small deal from the New York-based financial company.

Resource Capital shares were mostly positive during the session and closed up a penny to $4.86.

Pricing of the registered deal came beyond the cheap end of initial talk for the coupon, which was 7% to 7.5%, and at the cheap end of 10% to 15% premium talk.

Morgan Stanley & Co. LLC and JPMorgan were joint bookrunning managers.

The notes are non-callable for life with no puts. There is takeover protection and dividend protection for dividends of 16 cents or more.

Proceeds will be used for general corporate purposes, including acquisition of investments, loan originations and working capital.

Brocade to price

Brocade Communications was expected to price $500 million of five-year convertibles after the market close that were talked to yield 1.375% to 1.875% with an initial conversion premium of 30% to 35%.

The five-year bonds being distributed under Rule 144A were being sold via joint bookrunners Wells Fargo Securities LLC and BofA Merrill Lynch.

Details on valuation and whether the deal was trading in the gray market were not forthcoming.

“We haven’t heard anything. They are playing it close to the vest,” a New York-based trader said, who added that his firm would likely be involved in the deal on Friday.

Brocade is a San Jose, Calif.-based storage area networking company. The deal is coming with a call spread overlay. Also concurrently with the notes deal, Brocade will issue a notice of redemption for the 2020 notes and plans to terminate its senior secured credit facility.

Mentioned in this article:

Brocade Communications Systems Inc. Nasdaq: BRCD

Insulet Corp. Nasdaq: PODD

The Medicines Co. Nasdaq: MDCO

Resource Capital Corp. NYSE: RSO

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.