Vertex Pharma adds on active debut; Avis, Hertz slip; Rite Aid down, but CBIZ adds to debut

By Rebecca Melvin

New York, Sept. 23 - Vertex Pharmaceuticals Inc.'s newly priced 3.35% convertibles were a centerpiece of trade on their debut in the convertible market on Thursday, moving up to 101 to 101.25 after the overnight offering of $375 million of five-year notes priced ahead of the market open.

Both Avis Budget Group Inc. and Hertz Global Holdings Inc. were in trade amid news that Avis raised the cash portion of its buyout bid for Dollar Thrifty Automotive Group Inc. by 12%, furthering the bidding war with Hertz.

Rite Aid Corp.'s convertibles were mostly quiet during the session, but were traded at 94.8 around 4 p.m. ET, which was lower by about a point from previous levels, according to a pricing source.

CBIZ Inc.'s 4.875% convertibles, which debuted in the secondary market on Wednesday, extended gains on Thursday, trading at 103 compared to about 102.5 Wednesday, as CBIZ shares moved higher in what was overall a down day in equities.

Re-financing candidates

CBIZ, the Cleveland-based business services provider, priced an upsized $115 million of five-year convertibles to fund a cash call of its existing 3.125% convertibles next spring.

Citigroup Sales & Trading in commentary published Wednesday noted a recent trend of re-financings, and other companies that have recently issued debt to refinance short-dated convertibles, including Amgen Inc., which sold $1.5 billion of straight debt recently, and Transocean Ltd., which sold $1.1 billion of straight debt, as well as some smaller, sub-investment grade issuers.

Alliant Techsystems Inc., which is rated B+, sold $344 million of 10-year debt recently, with proceeds slated to repay its 2.75% convertibles, and American Equity Investment Life Holding Co. sold $170 million of new 3.5% convertible paper last week with some of the proceeds to be used to repurchase its existing 5.25% convertibles putable in 2014.

"With the capital markets open for business and interest rates hovering near historic lows, a parade of convertible issuers have issued new debt with proceeds earmarked to pay off their existing, short dated convertible debt. Practitioners of this exercise have run the gamut from small cap to large cap, junk credit to investment grade in a variety of different industries," the Citigroup U.S. convertibles sales and trading desk noted.

Among potential refinance candidates going forward is Superior Energy Services Inc.'s 1.5% convertibles due 2026, which are putable/callable in December 2011.

Vertex adds on active debut

Vertex's newly priced 3.35% convertibles were actively traded on Thursday at 101 to 101.25, moving up even as its underlying shares fell in early trading.

"I was a bit surprised it was up with the stock down," a Connecticut-based sellside trader said.

Shares of the Cambridge, Mass.-based drug maker ended down just 5 cents at $36.12 in heavy volume, after opening down at $34.66.

"Vertex stock is coming back nicely. The stock was overdone and is tracking back nicely," a New York-based sellside trader said.

Vertex priced $375 million of five-year convertible senior subordinated notes and has a $25 million greenshoe. The register deal came toward the cheap end of talk for the coupon, which was 3% to 3.5%, and at the fixed point talked for the premium.

It made up the lion's share of trading at one sellside firm, and by 2 p.m. EST, more than 81 trades were reported with $64 million of shares having traded, according to Trace data, a New York-based sellside trader said.

Bank of America Merrill Lynch, which was the underwriter of Wednesday's CBIZ deal, was also the underwriter for Vertex.

The notes have a provisional call prior to Oct. 1, 2013 if the closing price of shares is greater than 130% of the conversion price for at least 20 out of 30 consecutive days. The call price is par plus a make-whole payment for interest. Starting Oct. 1, 2013, the notes have a hard call.

Holders may require Vertex to repurchase all or any part of their notes upon the occurrence of a fundamental change.

Proceeds are for general corporate purposes, which may include investment in the development and commercialization of telaprevir and VX-770, clinical trial costs and other development costs for telaprevir and VX-770 and other drug candidates, research expenditures, and potentially acquisitions.

Rite Aid trades down

Rite Aid 8.5% convertibles due 2015 traded at 94.8 at the end of the session, according to a trading source, who said there was also $2 million of the Rite Aid convertibles that traded a par.

Most pricing sources said that they had not heard Rite Aid in trade at all, and Trace data hadn't reported any trades by 2 p.m. EST.

The Camp Hill, Pa.-based drugstore chain posted a wider loss and lower revenue that missed estimates and lowered its full-year forecast. During the second quarter, the company repurchased $93.8 million of the 8.5% convertible notes due 2015.

Shares of the drugstore chain, which had moved up on Wednesday, fell 15 cents, or nearly 14% on Thursday, to $0.95.

The company, which is rumored as a potential takeover candidate, reported that fiscal second-quarter revenue fell due to store closures and fewer prescription sales and as a refinancing charge hit results.

For the quarter ended Aug. 28, Rite Aid posted a loss of $197 million, or 23 cents a share, compared with a loss of $116 million, or 14 cents a share, in the year-earlier period. Excluding items, the loss was 18 cents a share. Analysts forecast a loss of 16 cents a share.

Revenue slid 2.5% to $6.16 billion, slightly below analysts' expectations of $6.19 billion.

The drugstore operator now expects a loss for fiscal 2011 of 46 cents to 67 cents, compared with its forecast of a loss of 41 cents to 65 cents as of March. Analysts expected a full-year loss of 50 cents per share.

Rite Aid also cut its revenue forecast by $200 million and is now expected to post $25 billion to $25.4 billion.

On a year-over-year basis, the company had 65 fewer stores in the second quarter of 2011, and same-store sales for the quarter decreased by 1.5% versus the second quarter of 2010.

Second-quarter adjusted EBITDA was $181.2 million, down from adjusted EBTIDA of $216.5 million for the same period of 2010.

Superior Energy trades flat

Superior Energy's 4% convertibles traded at 97 versus a share price of $26.70 on Thursday, which was little changed on the day. The paper has a 66% premium.

The issue is a likely candidate for refinancing, according to Citigroup, following a trend in which several companies have issued straight and convertible debt to retire short dated converts.

"The immediate effect of these transactions is obvious: If the issuer's converts were trading below par, they're bid higher in anticipation of a par put (the additional liquidity from the new issue increase the likelihood that the company can afford to pay the cost of redemption), or a call (again, proceeds from the new issue increase the chances of the company's ability to execute a cash call)," Citigroup said in its note.

"For issues trading above par, although not so far above part that a put or cash call would be out of the question, those that are putable could potentially see some premium expansion as the balance sheet boost would entice some investors to forgo the put in favor of the additional coupons and time value in the option that would accrue if the issue remained outstanding," Citigroup said.

"Conversely, callable issues would probably come in based on an even higher possibility that the issue gets called given the issuer's enhanced liquidity position," Citigroup Sales & Trading added.

Mentioned in this article:

Avis Budget Group Inc. NYSE: CAR

CBIZ Inc. NYSE: CBZ

Hertz Global Holdings Inc. NYSE: HTZ

Rite Aid Corp. NYSE: RAD

Superior Energy Services Inc. NYSE: SPN

Vertex Pharmaceuticals Inc. Nasdaq: VRTX

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