Tesla steady at highs; Allscripts expands on hedge; Vantage Drilling, Merrimack on tap

By Rebecca Melvin

New York, July 10 - Convertibles were more active on Wednesday than earlier in the week, with decent action in Tesla Motors Inc., which was steady although slightly weaker at the stock's new higher levels, market sources said.

"Tesla seems like it's holding in. It may have leaked a little bit, but nothing crazy," a New York-based trader said.

Allscripts Healthcare Solutions Inc. saw its month-old $300 million issue of seven-year convertibles gain on a dollar-neutral, or hedged, basis after the Chicago-based medical software company clinched an important hospital contract and announced preliminary second-quarter sales results that were improved.

Activity in the convertible bond market picked up a bit on Wednesday even though equities lagged ahead of the release of the minutes of the June 18-19 Federal Open Market Committee meeting, which came out at 2 p.m. ET.

Also trading on a spike in the underlying shares was Molycorp Inc. It wasn't clear what was driving activity in the shares, which ended the session up 16%, a Connecticut-based trader said.

The trader traded the Molycorp 3.25% convertibles at 68 to 68.25 prior to the stock pushing higher.

Stocks pared losses and even turned positive initially after the FOMC minutes, but ended mixed.

The minutes emphasized Fed officials' concerns about how to communicate their bond-purchasing policy effectively, but provided little immediate additional clarity.

By the end of the session, the Dow Jones industrial average closed down 8.68 points to 15,291.66; the S&P 500 stock index eked out a positive close by 0.3 point to 1,652.62, and the Nasdaq stock market gained 16.5 points, or 0.5%, to 3,520.76.

With the Fed minutes out of the way, two issuers came to market with deals of $75 million each after the market close.

Vantage Drilling Co. planned to price an overnight deal of $75 million of 30-year convertible senior notes via Jefferies & Co. Shares of the Houston-based offshore drilling company dropped 6% in after-hours trade.

Merrimack Pharmaceuticals Inc. launched a $75 million deal of seven-year convertible senior notes together with a $50 million offering of common stock. Proceeds of both deals are earmarked to fund the Cambridge, Mass.-based biopharmaceutical company's research and development. Merrimack shares were down 8% in after-hours trade.

In other economic data, wholesale inventories dropped 0.5% in May, which was the most in 1.5 years and the second consecutive monthly decline, the Commerce Department reported.

Allscripts expands

Allscripts Healthcare's 1.25% convertibles due 2020 traded up to 104.875 bid, 105.625 offered versus an underlying share price of $14.55 on Wednesday.

That was seen up 0.875 point on a dollar-neutral basis using a 65% delta, according to a New York-based trader who provided the quote. A second market source said it was safe to say that the Allscripts convertible had expanded up over a point in the last couple of days.

Shares on Wednesday gained $1.35, or 10%, to $14.73.

The flows were pretty quiet at the firm of the first trader. But the second trader said, "someone is taking these, they don't Trace so people don't know how active they are, but I would assume there is some decent activity going on in these with some buyers, or one really large buyer, around."

The gains came after the Chicago-based medical software company announced improved sales results for the second quarter early Wednesday on the heels of news late Tuesday that a large managed IT services contract had been clinched with North Shore-LIJ Health System.

Allscripts announced preliminary sales results for the second quarter, expects bookings to exceed $200 million for the three months ended June 30. That compared with bookings of about $194 million for the second quarter of 2012 and about $178 million for the first quarter of 2013.

The company also said it expects total contract backlog as of June 30 to be about $3.1 billion, representing about 13% quarter-over-quarter growth.

The preliminary second-quarter contract backlog includes the five-year extension for Managed IT services with North Shore-LIJ Health System, as well as several other client extensions signed during the second quarter.

Allscripts is expected to report earnings on Aug. 8.

On Tuesday, Allscripts said that its five-year contract extension with North Shore-LIJ Health System is expected to yield more than $400 million in incremental revenue over the life of the contract.

Allscripts priced its $300 million of 1.25% convertibles last month when the paper traded at 100.75 bid, 101.25 offered versus a share price of $13.22 on its debut. Proceeds of the issue were earmarked to repay debt.

Vantage to price

Vantage Drilling planned to price an overnight deal of $75 million of 30-year convertible senior notes that were talked at a 5.25% to 5.75% coupon with an initial conversion premium of 22.5% to 25%.

The Rule 144A offering has a $15 million greenshoe and was being sold via Jefferies & Co., with pricing seen before the market open Thursday.

The notes are non-callable for three years and then provisionally callable for two years if shares rise to at least 150% of the conversion price. They are freely callable thereafter. They have investor puts in years three and five at par.

The securities also have takeover and dividend protection and net share settlement.

Upon conversion prior to July 15, 2016, investors will receive 1.75-years' worth of coupon payments.

A portion of the proceeds will be used to fund the initial payment of $59.5 million under the construction contract for the Cobalt Explorer drillship with the remainder for general corporate purposes.

Merrimack to price

Merrimack Pharmaceuticals planned to price $75 million of seven-year convertible senior notes after the market close Thursday to yield 4.25% to 4.75% with an initial conversion premium of 22.5% to 27.5%, according to market sources.

Merrimack is also planning to price $50 million of common stock with a $7.5 million greenshoe.

The registered, off-the-shelf deal has a greenshoe of $11.25 million and was being priced by joint bookrunners J.P. Morgan Securities LLC and BofA Merrill Lynch, with Cowen & Co. LLC acting as co-manager.

The bonds are non-callable for life with no puts. There is takeover and dividend protection.

Proceeds from both offerings will be used to fund research and clinical development and seek marketing approval for MM-398 for the treatment of metastatic pancreatic cancer.

The Cambridge, Mass.-based biopharmaceutical company is focused on cancer treatments.

Mentioned in this article:

Allscripts Healthcare Solutions Inc. Nasdaq: MDRX

Merrimack Pharmaceuticals Inc. Nasdaq: MACK

Molycorp Inc. NYSE: MCP

Tesla Motors Inc. Nasdaq: TSLA

Vantage Drilling Co. NYSE: VTG

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