Brookdale adds dollar neutral after acquisition news; Iconix mostly in line; AMAG gains

By Rebecca Melvin

New York, Feb. 21 - Brookdale Senior Living Inc.'s convertible bonds traded higher on an outright and dollar-neutral, or hedged, basis on Friday after the Brentwood, Tenn.-based operator of assisted-living homes for seniors announced it is buying senior living company Emeritus Corp. for $1.4 billion in cash and the assumption of about $1.4 billion in debt.

The Brookdale 2.75% convertibles due 2018, which priced in the middle of 2011, traded fairly actively for a sleepy Friday afternoon and expanded about 1 point to 1.25 points, a New York-based trader said.

A second trader said there wasn't really anything else of note besides the Brookdale trades in the convertibles market on Friday.

U.S. convertibles have been quiet this past week, with traders citing the fact that "we're coming off the Presidents Day holiday weekend," for which financial markets were closed on Monday, and also the fact that earnings season is winding down and new issuance volume remains low.

"We are sort of in the post-earnings lull for some of these convert names," a New York-based sellsider said.

Also light new issuance is contributing to the quieter tone as there is no impetus to make room for new paper, he said.

Nevertheless, "there is net buying, without a ton of selling, so a lot of things are grinding higher," he said.

The tendency of market players to want to hang on to names that have worked so far has really put wind in the sails of names like Tesla, he said.

Tesla Motors Inc.'s convertibles were not active on Friday but they surged on Thursday after the Palo Alto, Calif.-based electric car maker reported better-than-expected quarterly earnings and offered an upbeat production outlook.

"There was some draw down in the name [Tesla] a month ago as borrow was an issue, but after the stock responded, the shorts got squeezed out, and two or three times already, the borrow has improved. People aren't willing to short a name like Tesla, so it's gotten 3 or 4 points better," he said.

Meanwhile, market players are waiting for new issuance to pick up, especially since equity prices are high. "People are biding their time for a while, and there is a lot of dry powder," the sellsider said.

Elsewhere, Iconix Brand Group Inc.'s convertibles were in focus after the New York-based consumer brands marketing company reported improved fourth-quarter earnings that lagged estimates, while revenue was in line with estimates. The bonds appeared to trade a point or so higher in line with the underlying shares.

Elsewhere, AMAG Pharmaceuticals Inc.'s 2.5% convertibles, which priced earlier this month, showed up on the Trace tape early Friday, changing hands at 107.125, which was up 0.235 point with shares of the Waltham, Mass.-based specialty pharmaceutical company trading a little lower.

The $200 million AMAG deal priced Feb. 11. With the stock at about $21.47, the bonds traded at 107.125.

Equities turned sharply lower heading into the market close after trading in the green for the majority of the session. The Dow Jones industrial average settled lower by 29.93 points, or 0.2%, to 16,103.30; the S&P 500 stock index slipped 3.53 points, or 0.2%, to 1,836.25, and the Nasdaq stock market lost 4.13 points, or 0.1%, to 4,263.41.

Brookdale adds dollar neutral

Brookdale's 2.75% convertibles due 2018 traded last at 127.5 bid, 128.5 offered with the underlying shares at $30.75, a New York-based trader said late Friday.

The stock was up small, and the bonds were up about 1 point to 1.25 points dollar neutral, the trader said.

The bonds traded on a mid-70% delta, he said.

Brookdale shares were last at $30.55, which was up 46 cents, or 1.5%. But they had hit a 52-week high of $32.38 earlier Friday.

Brookdale will give Emeritus shareholders 0.95 of a share of Brookdale stock in exchange for each of their shares, which represented a premium of 32% over the last Emeritus share price, according to the company's news release.

Brookdale valued the deal at $2.8 billion, including about $1.4 billion of mortgage debt held by Emeritus. The deal is expected to close in the third quarter.

Brookdale currently has 649 facilities in 36 states, and this deal promises to enlarge the company to 1,161 facilities in 46 states, the company said.

BofA Merrill Lynch and CS Capital Advisors are serving as financial advisers to Brookdale and Skadden, Arps, Slate, Meagher & Flom LLP and Bass, Berry & Sims plc are serving as its legal advisers.

Wells Fargo Securities is serving as lead financial adviser, and Moelis & Co. is also serving as financial adviser to provide an independent fairness opinion to Emeritus; Perkins Coie LLP is serving as Emeritus' legal adviser.

Iconix mostly in line

Iconix's 2.5% convertibles due 2016 traded at 136.625 and also a little higher around 137, which was up about a point, while the underlying shares of the New York-based consumer brands marketing company rose 28 cents, or 0.7%, to $39.393 in strong volume.

Iconix posted earnings of 54 cents per share, which was up from 41 cents per share a year earlier but which fell short of some estimates.

Revenue rose 24% to $105.3 million compared to the year-earlier quarter. Improvement was driven by the company's recent acquisitions, including Umbro Buffalo and Lee Cooper, and strong performance of core brands as well as increased contribution from international joint ventures.

Also during the quarter, the company authorized a new share repurchase program of $500 million for the next three years.

For all of 2013, Iconix earned $2.39 per share, which was within the company's guidance for earnings in the range of $2.30 to $2.40 per share, while revenue grew 22% to $432.6 million, which was also within guidance.

Looking ahead, Iconix reiterated its earnings and revenue guidance for 2014, with revenue expected in the range of $440 million to $455 million and adjusted earnings in the range of $2.50 per share to $2.60 per share.

Mentioned in this article:

AMAG Pharmaceuticals Inc. Nasdaq: AMAG

Brookdale Senior Living Inc. NYSE: BKD

Iconix Brand Group Inc. Nasdaq: ICON

Tesla Motors Inc. Nasdaq: TSLA

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