Euronet prices upsized deal, TriZetto on deck; new US Airways' convertible gains; Incyte tumbles

By Rebecca Melvin

Princeton, N.J., Sept. 28 - Euronet Worldwide Inc. and the TriZetto Group Inc. launched convertible bond offerings on Wednesday, and the market also saw the first day of trading of the new 7% convertible of the new US Airways Group Inc., which priced at par and rose to 105 bid, 105.50 offered, but wasn't actively traded, sources said.

The Euronet breakfast deal priced late Wednesday at the midpoint of talk and with a deal size of $155 million of 20-year convertibles, $30 million bigger than initially expected.

In the secondary market, there was more active trading across various sectors compared to Tuesday; but selling continued, with several energy names lifting on an outright basis, but lower on swap by 0.25 point to 0.50 point, according to trading sources.

Incyte Corp. saw its 3.5% convertible issue tumble on an outright basis as its stock plunged more than 40% on news that the U.S. Food and Drug Administration asked the Wilmington, Del.-based biotechnology company to do another Phase II trial to provide additional data supporting the effectiveness and safety of its HIV drug, Reverset.

Also in health care names, generic drug makers Teva Pharmaceutical Industries Ltd. and Watson Pharmaceuticals Inc. traded, with two-way interest, a New York-based sellside trader said.

Elsewhere, Freeport-McMoRan Copper & Gold Inc. rose along with its stock after the copper producer said it will cut $302 million in debt in the third quarter through repurchases and conversions to stock.

Euronet prices $155 million deal

Euronet Worldwide Inc. dished up a breakfast deal that priced late Wednesday to yield 3.5%, up 37.5%, at the midpoint of talk, which was for yield of 3.25% to 3.75% and 35% to 40% for the initial conversion premium.

The deal, sold via bookrunner Banc of America Securities, was expected to be $125 million and elicited mixed to negative responses from convertibles players during the session.

"It's okay," said a New York-based sellside trader, who said that using a credit spread of 300 basis points over Libor and a volatility of 30%, the offering looked cheap at about 101 at the midpoint.

"It would be better if it came at the cheap end," he added.

A Connecticut-based buyside source said the deal was unappealing.

In a word, "yuck," he said, adding that he would "rather buy the company's old bonds and give up 200 bps of yield than accept a 10% lower absolute premium."

Euronet also has 1.625% convertible senior notes due 2024 that priced in December 2004.

"I'd rather have the cheaper premium," he said. "The stock is somewhat ahead of itself; you're going to have smaller moves, so it's better to have the low premium to catch the volatility."

"The old bonds are trading closer to par," he added.

Leawood, Kan.-based Euronet, an electronic payments provider, plans to use proceeds for general corporate purposes, including share repurchases, acquisitions of non-U.S. entities or other strategic investments.

TriZetto to price $100 million

The TriZetto Group Inc., which said it will bring $100 million of 20-year convertible senior unsecured notes, is expected to price after the close Thursday, according to a syndicate source.

The Rule 144A deal, via bookrunners UBS and Banc of America Securities, was talked to price at 2.25% to 2.75% for the coupon and at 30% to 35% for the initial conversion premium, a syndicate source said.

The notes, which were launched after the close Wednesday, are callable after five years and have puts at years five, 10 and 15.

TriZetto expects to use proceeds to purchase up to one million shares of TriZetto's outstanding common stock (including shares to be sold by purchasers of the notes in short sales). Remaining proceeds are earmarked for future acquisitions, working capital and general corporate purposes.

Newport Beach, Calif.-based TriZetto is a healthcare information services company.

Incyte 3.5% convertibles tumble

The 3.5% convertibles of Incyte dropped 15 to 16 points on an outright basis after the FDA asked Incyte to conduct another phase II clinical trial to show its Reverset drug's safety and effectiveness in treating HIV patients who have already received other treatments, which will prevent the company form proceeding with two planned phase III clinical trials.

It will likely mean a 12- to 18-month setback in launching the drug, Incyte said. Initially, the company had hoped to launch Reverset in early 2008.

Incyte shares fell $2.97, or 41.02%, to end Wednesday at $4.27. Its 3.5% convertible bond due 2011 was traded heavily, dropping to 73 from 88.75 on Tuesday, a trader said.

Many fans of Incyte, however, thought the market reactions were overblown.

One market source said the "stock is oversold" based on his read of what the FDA staff was saying.

"FDA is requesting another phase II trial for Reverset. We believe management didn't construct trial properly," he said. "The FDA requested more data on safety and efficacy of Reverset before moving to phase III trials, said the group was too small and they weren't sure of the safety profile of drug due to a small group size."

While the delay in phase III trials and eventual launch of the drug would push out profitability projections from 2008 to 2009, he said fair value on the stock seems reasonable at $5. That, he added, would make the 3.5% convert worth 76.25 to 77.

US Airways convertible, stock higher

US Airways' new 7% convertible climbed 5% to 5.5% as its underlying stock gained 6.22%, but traders said that the issue appealed to more specialized funds because of its risk/reward ratio, and was therefore not attracting a lot of general interest.

US Airways' stock closed up when most other airline stocks were lower on the day. Shares of US Airways, which emerged from Chapter 11 on Tuesday and merged with America West Holdings Inc. on the same day, closed up $1.20, or 6.2%, to $20.50 on Wednesday.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.