Convertibles primary market prices $765 million in four deals; secondary trading mixed

By Abigail W. Adams

Portland, Me., April 19 – After a lull in activity, the convertible bond primary market priced $765 million over four deals, which hit the market on Thursday with mixed results.

Paratek Pharmaceuticals Inc. and Ship Finance International Ltd. priced overnight deals prior to the market open on Thursday.

Deutsche Bank AG, London Branch and South Jersey Industries, Inc. priced after the market close on Wednesday.

Despite the influx of new paper, the secondary market was quiet on Thursday with about $100 million on the tape early in the session and about $460 million on the tape by late afternoon, sources said.

Paratek trades up

In an overnight deal, Paratek Pharmaceuticals priced an upsized $140 million of six-year convertible notes at par prior to the market open on Thursday with a coupon of 4.75% and an initial conversion premium of 20%.

Pricing came in line with talk for a fixed coupon of 4.75% and an initial conversion premium of 20%, according to a market source.

The initial size of the deal had been for $125 million with a greenshoe of $18.75 million. The greenshoe was upsized to $25 million.

The new paper was not seen in the secondary market early in the session, sources said. “I don’t see any of the brokers making a market in it,” a market source said.

Trading of the 4.75% notes due 2024 picked up in the afternoon with about $42 million of bonds in play, making it the top volume mover of Thursday’s session, according to a market source.

The notes were seen trading north of 101 versus an equity price of $11.15, a decrease of more than 14%. Paratek stock closed Thursday at $11.225, a decrease of 15.28%.

The deal was “a club-type deal,” a market source said, and was not in focus for sources queried.

Ship deal ‘sloppy’

Also in an overnight deal, Ship Finance priced $150 million of five-year convertible notes prior to the market open on Thursday at the cheap end of talk with a coupon of 4.875% and an initial conversion premium of 27.5%.

Price talk had been for a coupon of 4.375% to 4.875% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The 4.875% notes due 2023 were seen contracted about 1.5 points dollar neutral early in the session and 1 point dollar neutral later in the afternoon, a market source said.

The notes were trading “all over the place,” in a range of 97.5 to par early in the session, a source said. The notes were largely wrapped around 98.75 with stock down more than 5%.

The notes were seen quoted at 98.5 bid, 99 offered.

The deal “was a little sloppy,” a market source said. “It didn’t really model out and it’s not the most liquid stock.”

In connection with the convertible note offering, Ship Finance entered into share lending agreements with the underwriters for up to 7 million shares of common stock.

The notes had a theoretical delta of 75% but will most likely move on a 70% delta, a market source said.

With more than $35 million on the tape by late afternoon, the new paper was second only to Paratek in volume during Thursday’s session.

The trading activity was a surprise, market sources said. However, the deal was “small and clubby,” a market source said, and the notes are not expected to see sustained action.

Old Ship active

While Ship Finance’s new 4.875% convertible notes were in focus, the company’s outstanding 5.75% convertible notes due 2021 were also active.

The 5.75% notes were down more than 1 point outright to trade at par versus an equity price of $14.05.

About $10 million of the 5.75% notes from the Hamilton, Bermuda-based limited liability company focused on maritime industry investments traded during Thursday’s session.

Ship stock closed Thursday at $14.05, a decrease of 5.39%.

Deutsche downsizes

Deutsche Bank priced a downsized $225 million of five-year cash-settled equity-linked notes tied to JPMorgan Chase & Co. stock with a 1% coupon and a 16% initial conversion premium after the market close on Wednesday, according to a news release.

The amount was reduced from the originally announced $250 million. The coupon matched the fixed 1% talk and the threshold premium was at the rich end of talk for 13% to 16%.

The issue price was 103, lower than the previously announced issue price of 105. “The 105 was stretching it a little,” a market source said.

The new 1% cash-settled notes were seen trading at their issue price of 103 although with few bonds on the tape. The allocation was a decent mix of retail and institutional investors, a market source said.

“It looks like that one got bagged away,” a market source said.

The initial price will be the volume weighted average price of JPMorgan stock on the day after pricing. JPMorgan stock closed Thursday at $111.72, an increase of 2.2%.

South Jersey trades up

South Jersey Industries priced $250 million, or 5 million units, of three-year mandatorily convertible $50-par equity units to yield 7.25% with a 20% initial conversion premium after the market close on Wednesday.

The deal came at the middle of talk for a yield of 7% to 7.5% and a conversion premium of 17.5% to 22.5%.

The notes were seen trading up to $51 early in the session. “They’re trading nicely,” a market source said.

The notes came in a little bit in the afternoon and were seen up about 0.5 point on swap, a market source said. “It’s because of where they priced the stock,” a market source said.

Concurrently with the mandatory convertible equity units, South Jersey Industries priced $325 million, or 11,016,949 shares, of common stock at $29.50 each.

Of the total, 6,779,661 shares are subject to a forward sale agreement.

South Jersey Industries stock closed Thursday at $29.82, a decrease of 0.96%.

Mentioned in this article:

JPMorgan Chase & Co. NYSE: JPM

Paratek Pharmaceuticals Inc. Nasdaq: PRTK

Ship Finance International Ltd. NYSE: SFL

South Jersey Industries, Inc. NYSE: SJI

© 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.