Upsized Savient jumps on debut; Avatar prices 7.5% convertibles; ADM gains after earnings

By Rebecca Melvin

New York, Feb. 1 - Savient Pharmaceuticals Inc.'s newly priced 4.75% convertibles traded up to 106 bid, 106.25 offered on their debut in secondary dealings Tuesday and were a central focus of the convertibles market after the deal priced at par and was upsized 60% to $200 million late Monday.

The Savient deal was viewed at about 2% cheap using pricing at the midpoint of talk, which is where they came for the coupon, according to a Connecticut-based sellside analyst.

Also pricing was Avatar Holdings Inc., which sold $100 million five-year convertible senior notes to yield 7.5% with a 50% initial conversion premium. The new Avatar notes were not heard in trade and weren't seen as an interesting hedged play given that the underlying shares have a small float and are difficult to borrow.

Both new deals were registered, off-the-shelf offerings, but Avatar was "basically a private [deal]," a New York-based sellsider said.

Elsewhere, Archer-Daniels-Midland Co.'s convertibles were higher in trade after the Decatur, Ill.-based agricultural processing company reported better-than-expected quarterly earnings.

Action in Massey Energy Corp. was quieter after the coal company's convertibles jumped Monday on merger news. Investors are likely to hold on to the notes and convert them once the planned merger closes, market players said.

Massey jumped 10 points outright on Monday after Alpha Natural Resources Inc., an Abingdon, Va.-based coal company, agreed to buy the Richmond, Va.-based coal company.

The popularity of Savient reveals how "bored people are with the same, old names," a New York-based sellside trader said of the market Monday. Trading was concentrated in ADM, EMC Corp. and Transocean Ltd., none of which are hedged names.

Market players were interested in Savient because there's "a lot of leverage in the number of shares," the sellsider said, referring to the high conversion ratio for the new paper.

Investors are also going to be fans of the higher 4.75% coupon, he said. That coupon certainly is as high as some of the new deals of late for which credit was lacking. Clearwire Corp., for example, recently priced its exchangeables due 2040 with an 8.25% coupon. Avatar's deal priced Tuesday had a 7.5% coupon.

"There's a different kind of issue coming right now," the sellsider said. "You have a lot more lesser credits that are coming [to market] compared to the beginning of last year."

Savient jumps on debut

Savient's newly priced 4.75% convertibles due 2018 traded at 103.5 early in the session and also higher at 106 bid, 106.25 offered versus a common stock price that was higher at $9.25, compared to the open.

Shares of the East Brunswick, N.J.-based specialty pharmaceutical company ended lower at $9.15, which was off 8 cents, or nearly a percentage point.

The underwriter used a credit spread for the new paper of 750 basis points over Libor with a volatility input of 37%.

One sellside analyst said he was "much wider," but he used the same vol. and he got them 2% cheap at the midpoint of coupon talk and at the rich end of premium talk.

"It shows a lot of demand; people are bored of the same names," a sellsider said regarding the price jump of Savient's convertibles on Tuesday.

The registered, off-the-shelf offering was initially talked at $125 million in size and had been upsized during marketing to $175 million before finally coming at $200 million.

The convertible senior notes priced at the midpoint of coupon talk, which was 4.5% to 5%, and at the rich end of 20% to 25% premium talk.

J.P. Morgan Securities LLC was the bookrunner for the offering, which has a $30 million greenshoe. Lazard Capital Markets LLC and Cowen and Co. LLC acted as the co-managers.

The bonds will be non-callable for four years, and there is contingent conversion at a price hurdle of 130%.

Proceeds will be used to commercialize Savient's Krystexxa drug in the United States, to fund clinical development, to seek regulatory approval for Krystexxa in the European Union and for general corporate purposes.

East Brunswick, N.J.-based Savient is a specialty biopharmaceutical company focused on developing and commercializing Krystexxa for the treatment of chronic gout.

Avatar quiet on debut

Avatar's newly priced 7.5% convertibles due 2016 weren't heard in trade on their debut Tuesday.

"Nobody asked for a quote or anything," a New York-based sellside trader said.

Shares of the Coral Gables, Fla., real estate development company ended down just 9 cents, or less than half a percentage point, at $19.88 on Tuesday.

The company has a market capitalization of $250 million and just raised $100 million, inspiring one sellsider to label the issue as "chunky."

The five-year convertible senior notes yield 7.5%, with an initial conversion premium of 50%.

Proceeds will be used for general corporate purposes, including repayment of debt, including Avatar's 4.5% convertible senior notes, and to potential new acquisitions of real estate and real estate-related assets.

ADM up a point outright

ADM's 0.875% convertibles due 2014 traded at 107.5 versus a share price of $34.90. The paper was up 1 point outright compared to the ADM shares, which were up $2.03, or 6%, at $34.70.

The convertibles have about a 40% delta and aren't heavily hedged.

The company reported a profit of $732 million, or $1.14 per share, compared with $567 million, or 88 cents per share, a year earlier.

Excluding gains from ADM's acquisition of Golden Peanut, earnings were $1.06 a share, which was much higher compared to the average forecast of analysts of 78 cents.

Revenue climbed 32% to $20.9 billion.

The company benefited from strong global grain demand and stronger ethanol margins and volumes.

The company exported a record volume of U.S. grain as drought hit Russia and floods plagued Australia.

Massey convertibles in focus

Massey Energy's 3.25% convertibles due 2015 traded a little lower at 109 compared to 110.25 on Monday.

Shares of the Richmond, Va.-based coal producer rose again, gaining $1.89, or 3%, to $64.75, extending a nearly 10% gain on Monday.

Holders of the Massey convertibles have several options when the planned merger with Alpha Natural Resources closes, which is expected around midyear.

Because the fundamental change under the Massey convertible indenture has been triggered, investors have three options, Bank of America convertible analyst Alan Yu wrote in a report.

Investors can either exercise the change-of-control put, requiring Alpha/Massey to repurchase the convertibles at par for cash after the close; they can exercise the conversion right, given that the offered value for the Massey shares falls in the range of the make-whole provision after the close; or they can keep the convertibles outstanding post close of the transaction to be re-referenced to the Alpha Natural common shares.

"We find keeping the Massey convert outstanding would fetch the highest value for investors. That view, of course, would change if the Alpha stock price declines dramatically, which would make par put a better option," Yu said in his report.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

Archer-Daniels-Midland Co. NYSE: ADM

Avatar Holding Inc. Nasdaq: AVTR

Massey Energy Corp. NYSE: MEE

Savient Pharmaceuticals Inc. Nasdaq: SVNT

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