Pacira BioSciences convertibles expand; American Airlines contracts; Microchip active

By Abigail W. Adams

Portland, Me., July 8 – Wednesday opened with the first new deal of the week hitting the convertibles secondary space.

Pacira BioSciences Inc. priced an upsized $350 million five-year convertible notes after the market close on Tuesday.

The new paper dominated trading activity and saw a large dollar-neutral expansion.

The deal is expected to be the only one of the week, a source said.

While the summer doldrums were beginning to take hold of the convertibles primary and secondary market, trading volume in the secondary space remained decent on Wednesday.

There was $815 million in reported volume about one hour before the market close.

Markets were firm on Wednesday with the convertibles secondary space still looking better to buy, a source said.

While the tech sector continued to lead equity indexes higher, Microchip Technology Inc.’s 1.625% convertible notes due 2027 were active on Wednesday with stock off.

The convertible notes of airlines also saw high-volume activity although they were moving in opposite directions.

Southwest Airlines Co.’s 1.25% convertible notes due 2025 were the most actively traded issue in the secondary space with the notes continuing to hold onto their large gains.

However, American Airlines Group Inc.’s 6.5% convertible notes due 2025 continued to trade off on an outright and dollar-neutral basis as rumors circulate the market about a possible bankruptcy filing.

Pacira expands

Pacira BioSciences priced an upsized $350 million five-year convertible notes after the market close on Tuesday at par with a coupon of 0.75% and an initial conversion premium of 32.5%.

Pricing came on top of final talk for a coupon of 0.75% and an initial conversion premium of 32.5%.

Initial price talk was for a coupon of 0.75% to 1.25% and an initial conversion premium of 30% to 35%, according to a market source.

The greenshoe was also upsized to $52.5 million.

The initial size of the offering was $300 million with a greenshoe of $45 million.

The new notes dominated activity in the secondary space on Wednesday and saw a large dollar-neutral expansion.

The 0.75% notes were changing hands between 102.5 and 103.5 early in the session.

They continued to climb and were changing hands on a 104-handle in the late afternoon.

The notes were seen expanded 2 to 3 points dollar-neutral in intraday activity.

They closed the day up 3.25 points dollar-neutral on the bid, a source said.

The bonds saw more than $120 million in reported volume heading into the late afternoon.

“It’s a good hedge name,” a source said.

Pacira BioSciences stock traded to a low of $53.85 and a high of $56.69 before closing the day at $56.54, an increase of 4.38%.

Approximately $211.1 million of proceeds from the new offering were used to repurchase $185 million of the company’s outstanding 2.375% convertible notes due 2022.

Prior to the buyback, the 2.375% notes had $345 million outstanding.

There were several prints of the 2.375% convertible notes at 113.192 early Wednesday, which appeared to be their buyback price.

About 11 accounts participated in the buyback, a source said.

Pacira paid about 3 to 4 points above market value for the 2.375% notes, the source said.

Pacira’s new offering was marketed with assumptions of 600 bps over Libor and a 40% vol., which modeled out to 1 point cheap at the midpoint of initial price talk.

Due to the tightness of the pricing of the new offering, many assumed there would be an extra added incentive in the buyback of the old notes.

However, the assumptions underwriters used to market the deal were conservative with the company’s credit spread tighter than what the deal was marketed with, sources said.

“The spread looked high,” a source said. “These guys make decent money.”

The deal looked much cheaper with a tighter credit spread, another source said, which was partially responsible for the 0.75% convertible notes’ strong performance in the secondary space.

Microchip active

While the tech sector continued to log gains and push equity indexes higher, Microchip’s 1.625% convertible notes due 2027 were active with stock off on Wednesday.

The 1.625% notes were down 2 points outright to 145.625 in the late afternoon.

However, the notes were largely moving with stock, a source said.

More than $30 million of the bonds were on the tape in the late afternoon.

Microchip stock traded to a low of $102.53 and a high of $105.40 before closing the day at $103.98, a decrease of 0.96%.

Airlines in focus

The convertible notes of Southwest Airlines and American Airlines saw high-volume activity on Wednesday although they continued to move in opposite directions.

Southwest’s 1.25% convertible notes due 2025 were second only to Pacira BioSciences’ new 0.75% notes in reported trading volume.

While active, the notes were little changed, a source said.

The 1.25% convertible notes were changing hands around 118 with stock off about 1% during Wednesday’s session.

There was more than $53 million of the bonds on the tape by the late afternoon.

Southwest stock traded to a high of $33.47 and a low of $32.07 before closing the day at $32.89, a decrease of 0.36%.

While Southwest’s convertible notes continued to hold onto their outright and dollar-neutral gains, American Airlines’ 6.5% convertible notes due 2025 continued to trade off.

The 6.5% convertible notes traded down more than 4.5 points outright to 86.5 in the late afternoon.

They contracted 1.5 points dollar-neutral.

American Airlines stock traded to a low of $11.43 and a high of $12.08 before closing the day at $11.99, an increase of 0.67%.

While American stock rebounded into the market close, the airline’s capital structure was under pressure on Wednesday as rumors circulated the market about a potential bankruptcy filing, a source said.

The travel industry has been among the hardest hit by the Covid-19 pandemic.

While all airlines are struggling, Southwest is among the best credits in the troubled sector.

Mentioned in this article:

American Airlines Group Inc. Nasdaq: AAL

Microchip Technology Inc. Nasdaq: MCHP

Pacira BioSciences Inc. Nasdaq: PCRX

Southwest Airlines Co. NYSE: LUV

© 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.