Ship Finance new issue steady; Depomed better on patent suit win; Tesla convertibles firm

By Stephanie N. Rotondo

Seattle, Oct. 3 – The convertible bond market was subdued on Monday, which one trader attributed to the Rosh Hashana holiday.

“There’s nobody in,” he said.

The primary was taking a breather after a jam-packed calendar the previous week. From last week, Ship Finance International Ltd.’s $225 million of 5.75% convertible senior notes due 2021 were seen holding in a 99.5 to 99.75 range.

The equity underlying the debt was meantime down 12 cents at $14.61.

The deal came Friday, upsized from $200 million and at the rich end of the 5.25% to 5.75% price talk. The conversion premium of 22.5% was in the middle of the expected 20% to 25% range.

Jefferies LLC, ABG Sundal Collier and Morgan Stanley & Co. LLC ran the books.

Chesapeake Energy Corp.’s $1.1 billion of 5.5% convertible senior notes due 2026 were meantime “still lagging a bit as all the flippers have not quite finished selling,” according to a trader.

The deal came late Thursday with a 5.5% coupon and a 40% initial conversion premium. Initial price talk had the coupon in the mid-6% area, according to a market source, with a conversion premium of 25%. Talk was later reduced to 5.5% to 6%.

The deal was also increased from the originally announced $850 million.

Goldman Sachs & Co. led the deal. Deutsche Bank Securities Inc. also participated.

In the secondary, Depomed Inc.’s 2.5% convertible notes due 2021 were on the more active side – though even trading there was modest.

On Friday, it was reported that the drugmaker had won a patent suit over its opioid drug, Nucynta. The win could help the company seek a buyer.

Meanwhile, Tesla Motors Inc.’s 1.25% convertible notes due 2021 were moving with the stock, as the company issued a report on Sunday that showed auto shipments had beat expectations.

In its statement, Tesla said it had shipped about 24,000 vehicles during the third quarter, putting the company well on its way to a second-half estimate of 50,000 vehicles delivered.

Depomed firms on lawsuit win

Depomed was moving up in Monday trading as investors reacted well to news that the company had won a patent lawsuit regarding its opioid drug Nucynta.

The 2.5% convertible notes were quite a bit higher from previous trades, rising 5 to 6 points to a 141.5 to 145.5 range. The stock was also improving, adding 61 cents, or 2.44%, to close at $25.58.

A trader pegged the convertibles at 143.29 versus a stock price $25.00 at mid-morning.

Earlier in the month, it was reported that the company was getting ready to put itself up for sale and that it expected to start talks with buyers after the court ruling.

Under the ruling, rival drugmakers Allergan plc, Alkem Laboratories Ltd and Roxane Laboratories Inc. are prohibited from selling generic versions of Nucynta until 2025. In other words, Depomed now has market exclusivity to the drug.

Tesla shipments rise

A trader said that while Tesla stock was “strong” on better-than-expected third-quarter shipments, the bonds were unchanged.

He called the convertibles unchanged on a dollar-neutral basis; the 0.25% convertible notes due 2019 were a point better outright, while the 1.25% convertible notes due 2021 were up 1.25 points outright.

The Tesla Bs were trading at 87.375 at mid-morning, a gain of about 2 points from Friday. They settled in to an 86.75 to 87 context. The As traded up a deuce to a 92 handle.

The stock firmed $9.67, or 4.25%, to $214.10.

As the Palo Alto, Calif.-based company looks to increase production of its new Model 3, the delivery results could give Elon Musk, chief executive officer, enough leverage to raise the additional capital needed for the ramp up.

Already, production has increased 37% quarter over quarter to 25,185 vehicles.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Depomed Inc. Nasdaq: DEPO

Ship Finance International Ltd. NYSE: SFL

Tesla Motors Inc. Nasdaq: TSLA

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