Infinera on tap; market eyes Perficient, Retrophin; Restoration Hardware in focus

By Abigail W. Adams

Portland, Me., Sept. 5 – The convertibles primary market hopped back into action in the return from the Labor Day weekend starting off what sources expect to be a high-volume month for new deal activity on strong footing.

Infinera Corp. joined the forward calendar with plans to price $275 million of six-year convertible notes after the market close on Thursday.

Price talk is for a coupon of 1.875% to 2.375% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

Morgan Stanley & Co. LLC is the bookrunner for the registered offering, which carries a greenshoe of $41.25 million.

Infinera is a repeat offender, a market source said. The Sunnyvale, Calif.-based manufacturer of optical transmission equipment recently retired its 1.75% convertible notes, which matured on June 1, 2018.

Retrophin, Inc. plans to price $200 million of seven-year convertible notes and Perficient Inc. plans to price $125 million of five-year convertible notes after the market close on Wednesday.

Sources pegged Retrophin’s convertible notes offering a few points cheap, while Perficient looked to be about fair value.

As market players eyed the new deals in the pipeline, Restoration Hardware Inc.’s 0% convertible notes due 2023 were in focus in the secondary space.

The notes were seen slightly expanded on a dollar-neutral basis as they dropped outright alongside stock on lower-than-expected sales figures.

Retrophin looks cheap

Retrophin plans to price $200 million of seven-year convertible notes after the market close on Wednesday with price talk for a coupon of 2.25% to 2.75% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

Underwriters are marketing the deal with a credit spread of 450 basis points over Libor and a 40% vol., according to market sources.

Using those assumptions, sources pegged the deal as either 1 point cheap, 1.76 points cheap or 3 points cheap at the midpoint of talk.

Using a credit spread of 400 bps over Libor and a 38% vol., sources pegged the deal between 1.75 points and 2.26 points cheap at the midpoint of talk.

A portion of the proceeds from the new offering will be used to repurchase a portion of the biopharmaceutical company’s 4.5% convertible notes due 2019.

The 4.5% convertible notes “are so far in the money, no one is using them as a barometer,” a market source said.

Retrophin priced $46 million of the 4.5% convertible notes in a private placement in 2014.

Holders of those notes will likely be enticed to participate in the new offering, a market source said.

While the deal was reported to be going well during bookbuilding, some sources saw the seven-year structure and four-year provisional soft call as a drawback to the offering.

Retrophin stock was down more than 10% with trading volume more than 4 times the 90-day average as bookbuilding for the new deal was taking place.

“It is a lot of stock to hedge for this name,” a market source said.

Retrophin stock closed Wednesday at $28.74, a decrease of 10.61%.

Perficient low vol.

Perficient plans to price $125 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 1.875% to 2.375% and an initial conversion premium of 25% to 30%, according to a market source.

Underwriters are marketing the deal with a credit spread of 250 bps over Libor and a 22% vol., sources said. Using those assumptions, the deal models about 0.25 point cheap.

Using a credit spread of 150 bps over Libor and a 18% vol., the deal models out to 99.91 at the midpoint of talk, another source said.

However, the deal models about 1 point cheap using a credit spread of 150 bps over Libor and a 20% vol., the source said.

At fair value, the deal looks attractive and is expected to do well, a source said.

However, the low vol. on the name is a drawback with hedge players reluctant to get involved, sources said.

“A lot of arb guys won’t play this,” a source said.

Restoration Hardware in focus

As the new deals in the pipeline were eyed, Restoration Hardware’s 0% convertible notes due 2023 were in focus in the secondary space.

The notes saw a slight expansion on a dollar-neutral basis as they dropped outright alongside stock, according to a market source.

The notes were seen trading at 94.75 versus an equity price of $133.16 in the late afternoon.

With more than $17 million of the bonds on the tape by the late afternoon, the 0% notes eclipsed all other trading activity in the secondary space.

The 0% notes closed the day down about 4.625 points outright at 94.14.

Restoration Hardware’s stock closed Wednesday at $131.51, a decrease of 13.07%.

The stock was taking a hit despite reporting a second-quarter earnings beat after the market close on Tuesday.

While Restoration Hardware beat analyst expectations with earnings per share of $2.49, versus expectations for earnings per share of $1.75, the home furnishings retailer’s stock dropped on lower-than-anticipated sales.

Mentioned in this article:

Infinera Corp. Nasdaq: INFN

Perficient Inc. Nasdaq: PRFT

Restoration Hardware Inc. NYSE: RH

Retrophin, Inc. Nasdaq: RTRX

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