Anacor up slightly on outright basis; new Gran Tierra adds; Rovi expands dollar neutral

By Rebecca Melvin

New York, April 1 – Convertibles players were encouraged that there were new deals in the market on Friday, which was the first day of the second quarter.

“It’s good to get a few deals, and hopefully, it keeps up,” a New York-based trader said.

Anacor Pharmaceuticals Inc.’s newly priced 2% convertibles due 2023 traded up slightly on an outright basis after $250 million of the seven-year notes priced at the midpoint of talk.

The Anacor 2% convertibles traded at 101.375, according to Trace data. But Anacor shares bounced strongly, so on a swap basis, the bonds didn’t perform that well.

Ahead of pricing, the Anacor bonds looked about 2 points cheap at the midpoint of talk.

Also in primary market action, Gran Tierra Energy Inc.’s 5% convertibles due 2021 traded a little higher at 100.5, according to Trace data. Shares of the Calgary, Alta.-based energy company were lower, however, so on a swap basis this paper performed well.

Gran Tierra priced $100 million of the five-year notes at mixed terms compared to talk.

A third new deal, Medallion Financial Corp.’s small, $25 million of five-year convertible senior notes, which was expected to price late Thursday together with the other two deals, did not appear to have priced. Bookrunner Keefe, Bruyette & Woods Inc. would not comment on the status of the deal, and bookrunner Sandler O’Neill & Partners LP could not be reached for comment.

Back in established issues, Rovi Corp.’s convertibles fell on an outright basis but expanded on a dollar-neutral, or swap, basis after news that the Santa Clara, Calif.-based software and internet media company has filed a lawsuit against Comcast Corp. for patent infringement.

“The bonds expanded on the way down,” a New York-based trader said.

SunEdison Inc. shares continued to drop, ending down 11 cents, or 20%, to $0.43, but there was no news for the solar power company, which was beset by negative headlines this past week and seems a likely candidate for Chapter 11 bankruptcy protection.

The SunEdison bonds are all around 4, but the SunEdison 6.75% preferreds were in the area of 20 on Friday, which was down from 26 previously.

Stocks were up on Friday following a mainly positive March U.S. jobs report and other positive economic data. The Nasdaq stock market was the outperformer, adding 0.9% on the day.

The number of jobs created in March was fairly robust, but other aspects of the report were not as bullish. Nonfarm payrolls rose by a seasonally adjusted 215,000 in March, the Labor Department reported Friday. Unemployment edged up to 5% from 4.9%.

The unemployment rate ticked up even though there was a net gain in jobs because 396,000 people encouraged by job growth joined the labor force in March.

There was strong job growth in retail, construction and health care. But manufacturers lost 29,000 jobs in March, after losing 18,000 in February. Employment in mining and logging, a sector that includes oil and gas, fell by 12,000 in March after a 17,000 loss in February.

Also in economic data on Friday, U.S. manufacturing activity expanded in March for the first time since last summer.

On Tuesday, Federal Reserve chairman Janet Yellen signaled that the central bank remains content to go slow regarding normalizing interest rates. Her speech doused expectations for any increase in rates at its next meeting, emphasizing caution necessary in the face of global economic developments especially in China.

Anacor edges up outright

Anacor convertibles printed at 101.375, according to the Trace data tape. But Anacor shares bounced strongly, so on a swap basis, the bonds didn’t perform favorably even though ahead of pricing, the Anacor bonds looked about 2 points cheap at the midpoint of talk.

Anacor shares closed up $3.63, or 7%, at $57.08, after they fell 9% on Thursday.

As it relates to a convertibles deal, the strong stock move can mean several things, a New York-based trader said.

“Sometimes people sell off a stock when the convertible is announced under the assumption that people will be shorting it. In this case, there is no open market shorting, so that would have been an error. Or sometimes the pricing exposes new people to the ‘story’ surrounding the stock and that creates buyers,” the trader said.

Anacor, a Palo Alto, Calif.-based biopharmaceutical company, priced $250 million of the seven-year convertibles after the market close on Thursday to yield 2% with a 32.5% initial conversion.

The deal came at the mid-point of talk, which had been set at a yield of 1.75% to 2.25% and an initial conversion premium of 30% to 35%.

The Rule 144A deal was sold via bookrunners Goldman Sachs & Co. and Citigroup Global Markets Inc.

There is a greenshoe for $37.5 million of additional notes.

The notes are non-callable for life and have no puts.

Proceeds from the offering will be used to fund the net cost of the capped call transactions and for general corporate purposes.

New GTE improves

GTE’s new 5% convertibles traded at 100.5 with the underlying shares of the independent energy company trading down 13 cents, or 5%, to $2.34.

The deal did not trade actively compared to Anacor.

GTE priced $100 million of five-year convertible senior notes after the market close on Thursday to yield 5% with an initial conversion premium of 30%.

Pricing came at the rich end of 5% to 5.5% coupon talk and at the cheap end of 30% to 35% premium talk.

There is a greenshoe for up to an additional $15 million of notes for the deal that was priced via joint bookrunners Nomura Securities Co. Ltd., Dundee Capital Markets and RBC Capital Markets LLC.

The notes are non-callable for three years and then provisionally callable if shares exceed 150% of the initial conversion price. There are no investor puts, except a takeover protection put, and the bonds have full dividend protection.

Proceeds from the sale will be used for general corporate purposes, including acquisitions and capital expenditures.

Gran Tierra is a Calgary, Alta.-based independent energy company.

Rovi expands

Rovi’s 0.5% convertibles due 2020 traded down about 5 points to about 90 on an outright basis. That represented about a point of expansion on a swap basis, a trader said.

Shares of the Santa Clara, Calif.-based digital entertainment company plunged $3.22, or 15%, to $17.40.

“The Rovi bonds traded off of some news that they have sued Comcast for infringement on their patents, so that is going to be something to watch going forward,” the trader said.

“The floor held moving down,” the trader said. The delta is now a lighter 50%.

Rovi filed the suit alleging that Comcast is violating 14 of its U.S. patents, including ones related to remote recording and search.

Comcast said in a statement that it disagrees with Rovi’s allegations and plans to defend the cases.

Mentioned in this article:

Anacor Pharmaceuticals Inc. Nasdaq: ANAC

Gran Tierra Energy Inc. NYSE: GTE

Medallion Financial Corp. Nasdaq: TAXI

Rovi Corp. Nasdaq: ROVI

SunEdison Inc. Nasdaq: SUNE

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