BioMarin Pharmaceutical launches $600 million deal; NQ Mobile, Seaspan, Navistar on tap

By Rebecca Melvin

New York, Oct. 7 - The convertibles market seemed to have its busiest day in several months on Monday, with more than $1 billion in base deals launched in the primary market.

BioMarin Pharmaceutical Inc. launched a registered dual-tranche deal after the market close for $600 million of convertible five-year and seven-year senior subordinated notes.

The five-year tranche was seen pricing with a 0.75% to 1.25% coupon and a 32.5% to 37.5% initial conversion premium, while the seven-year tranche was seen pricing with a 1.5% to 2% coupon and a 32.5% to 37.5% premium.

NQ Mobile Inc., a Beijing- and Dallas-headquartered mobile internet services company, launched a Rule 144A offering of up to $150 million of five-year convertible senior notes that was talked to yield 3.5% to 4% with an initial conversion premium of 25% to 30%.

Seaspan Corp., a Hong Kong-based containership company, said it planned to price $125 million of five-year convertible notes in a registered offering that was talked to yield 2.75% to 3.25% with an initial conversion premium of 22.5% to 27.5%.

Ahead of the market open, Navistar International Corp. launched $200 million of five-year convertible bonds, which were seen as a little rich by market participants.

The new deal stimulated the existing 3% convertibles due 2014 of the Lisle, Ill-based truck, bus, military vehicle and engine maker, which traded up in active trade. It was the most actively traded issue of the day in the convertible secondary market.

Otherwise, the secondary market was called "ridiculously quiet" during the session, according to one trader.

Tesla Motors Inc.'s convertibles looked to have ticked higher along with the underlying shares of the Palo Alto, Calif.-based electric car maker after chief executive Elon Musk made some reassuring remarks about the Model S car Friday following a battery-related car fire and video of the fire that rattled investors last week.

A Jefferies analyst on Monday raised her price target on Tesla shares to $210.00 from $160.00, saying that the worries related to the Model S car fire were overdone.

BioMarin plans $600 million

BioMarin, the Novato, Calif.-based biopharmaceutical company focused on therapeutic enzyme products, launched an offering, including $300 million of notes due 2018 and $300 million of notes due 2020.

Both $300 million tranches have a $35 million greenshoe.

The five-year tranche was seen pricing with a 0.75% to 1.25% coupon and a 32.5% to 37.5% initial conversion premium

The seven-year tranche was seen pricing with a 1.5% to 2% coupon and a 32.5% to 37.5% initial conversion premium.

The registered tranches were seen pricing after the market close Tuesday via bookrunners BofA Merrill Lynch, Goldman Sachs & Co., J.P Morgan Securities LLC and Morgan Stanley & Co. LLC. Barclays is a co-manager.

The senior subordinated notes are non-callable for life with no puts. They have contingent conversion if shares exceed 130% of the conversion price, and they have net share settlement, as well as takeover and dividend protection.

NQ Mobile on tap

NQ Mobile said it plans to price up to $150 million of five-year convertible senior notes after the market close Tuesday that were talked to yield 3.5% to 4% with an initial conversion premium of 25% to 30%, according to a market source.

The Rule 144A notes will be convertible into NQ's American Depositary Shares, each representing five class A common shares of NQ.

The offering has a $22.5 million greenshoe and was being sold via Morgan Stanley & Co. International plc and Deutsche Bank Securities Inc.

The notes are non-callable until Oct. 20, 2016 and then are provisionally callable if shares rise to 130% of the conversion price.

There is an investor put at year three. Settlement will be for shares only. There is also takeover and dividend protection.

Proceeds are earmarked for general corporate purposes, including working capital needs and potential acquisitions of complementary businesses.

Seaspan on tap

Seaspan planned to price $125 million of five-year convertible notes on Thursday. The registered deal was talked to yield 2.75% to 3.25% with an initial conversion premium of 22.5% to 27.5%.

Concurrently, Seaspan said it is also pricing 5.7 million shares of common stock in a primary offering. It is also issuing and lending 2.53 million shares to an affiliate of Deutsche Bank Securities Inc., which will sell the borrowed shares to investors of the convertible bonds. In addition, a selling shareholder is also offering 300,000 common shares in a secondary offering.

The convertibles, for which there is a greenshoe for up to $18.75 million, are non-callable with no puts.

Proceeds from the primary stock offer and convertibles will be used for general corporate purposes, which may include funding vessel acquisitions. The company won't receive proceeds from the secondary or borrowed shares offerings but will receive a nominal lending fee for the use of the borrowed shares, which Seaspan intends to use for general corporate purposes.

Deutsche Bank, BofA Merrill Lynch, Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC are acting as joint bookrunning managers of the convertibles offering.

New Navistar looks rich

The new Navistar convertibles deal that launched Monday looked optically rich given that the notes "don't model great," a Connecticut-based trader said.

They were expected to be issued at a discount of 99.5 and were talked at a 4% to 4.5% coupon and a 60% to 65% initial conversion premium.

Using a credit spread of 700 basis points over Libor and a 35% vol., the bonds were seen worth 97.5 at the midpoint of talk and worth 99.125 on the cheap end of talk, the Connecticut trader said.

A second source said he got the notes to value at 99 at the midpoint of talk, which was slightly rich at the 99.5 offer price.

"With a 40% vol., they would be almost 2% cheap, but it sounds like people are using 35%," the market source said.

Proceeds will be used, together with $270 million of intercompany borrowings, for general corporate purposes, including funding capital expenditures and repurchasing some of the existing 3% convertibles in open market and privately negotiated transactions.

The ultimate reoffered price of the new notes will depend on what the existing holders get paid, a trader said. But a third source noted that he didn't think the new deal was contingent on the repurchases of the 3% paper, and thought it was a little bit of wishful thinking for the existing paper to trade up.

"People are crazy to bid the old ones up on this," he said.

Nevertheless, the existing Navistar issue, which was a $625 million deal when it was first priced in 2009, was by far the most active name of the day in convertibles.

Existing Navistar up

Navistar's 3% convertibles due October 2014 traded up to about 103.5 bid, 104.25 offered on an outright basis in the early going, when the shares were down about $1.00, or nearly 3%.

"They were 104.5 when the stock was down $1.00 at $37.35," a trader said.

That was up about a point on a dollar-neutral, or hedged, basis, moving on a 20% delta, a Connecticut-based trader said. Navistar shares were trading down in early action by about $1.00, or nearly 3%.

Near the end of the session, the notes traded at 103.25 bid, 103.5 offered with the stock down by a greater amount, or about $2.00. On Friday, the Navistar 3% convertibles traded between 102 and 103.5.

Shares of the Lisle, Ill.-based truck, bus, military vehicle and engine maker ultimately fell $1.87, or nearly 5%, to $36.50 on Monday in heavy volume.

Mentioned in this article:

BioMarin Pharmaceutical Inc. Nasdaq: BMRN

Navistar International Corp. NYSE: NAV

NQ Mobile Inc. NYSE: NQ

Seaspan Corp. NYSE: SSW

Tesla Motors Inc. Nasdaq: TSLA

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