Acorda, EZCorp end flat after early weakness; planned Restoration Hardware bid above issue

By Rebecca Melvin

New York, June 18 – U.S. convertibles appeared to be suffering from a mild case of indigestion on Wednesday as two new deals released for secondary dealings lagged on a dollar-neutral, or hedged, basis, at least initially. But both deals were said to have ended in line, or flat, on a hedged basis by the market close, syndicate sources said.

On strong trading volume, Acorda Therapeutics Inc.’s newly priced 1.75% convertibles due 2021 traded up to 105.66 on an outright basis. The bonds traded in line late in the day on a delta in the mid-60% range and shares that were 6% higher at the time, a syndicate source said. Acorda shares ended up 7.8%.

EZCorp Inc.’s new 2.125% convertibles due 2019 ended the session at 98.75 bid, 99.25 offered with the shares at $11.57. The bonds were flat or slightly lower on the bid side on a dollar-neutral basis with shares ending down 2.8%, a syndicate source said.

Restoration Hardware Holdings Inc.’s $300 million deal of five-year convertible senior notes was bid above issue in the gray market ahead of final terms expected to be fixed after the market close.

“The name-brand value will draw outright institutions, and people are following that forward, expecting pretty aggressive pricing,” a New York-based trader said of Restoration Hardware.

Verint Systems Inc.’s 1.5% convertibles, which debuted in the market last Friday, changed hands at 103.1, according to Trace data, and looked flat to slightly higher dollar neutral. Shares of the Melville, N.Y.-based security and surveillance company closed at just over $50.00.

Market indigestion

Any market indigestion was viewed as mild. “The market is still weak from last week, and things tend to get thrown in the same bin, rightly or wrongly,” a New York-based trader said. “People are a little hesitant to gorge on any single issue.”

A second source agreed that the market is a little weaker but not significantly so. Wednesday’s two deals are “pretty small and not indicative of a massive turn,” he said.

“The market is still trading well. There has been about $5 billion in new paper for June to date, which is up to about $50 billion on an annualized basis,” the market source said. He pointed out that the annualized rate is higher than last year’s $47 billion.

In the broader markets, equities jumped following the latest policy statement from the Federal Reserve’s Federal Open Market Committee, which asserted the U.S. economy was doing well enough for further trimming of its bond-purchasing, stimulus program.

“Growth in economic activity has rebounded in recent months,” the Fed said in its statement at the conclusion of a two-day policy meeting. It pointed to an improving job market and resumed growth in business investment.

That meant a fourth consecutive gain for stocks and another record high for the S&P 500 stock index, which was up 15 points, or 0.8%, to 1,956.98.

New Acorda flat

Acorda’s new 1.75% convertibles opened up on their debut at about 102 bid, 102.5 offered after the Ardsley, N.Y.-based biopharmaceutical company priced $300 million of the seven-year senior notes at par at the rich end of price talk late Tuesday.

Later, the new Acorda bonds were seen higher outright at 104 bid, 104.75 offered, against shares that gained about 5%.

A second trader put the new Acorda level at 104.5 bid, 105 offered with the shares at $33.95. The issue was lagging on swap at that point, however.

By the end of the day, Acorda shares surged $2.49, or 7.8%, to $34.61, after dropping $3.16, or 9%, to $32.12 in the previous session, which followed the launch of the Acorda deal.

“With the stock up [this much], it’s hard to draw any conclusions,” a syndicate source said. “At the end of the day, there was steady, two-way, and it looks like the bonds nuked up with the stock.”

The Acorda deal was viewed as slightly cheap, or worth about 100.6 at the midpoint of talk, using a 500 bps credit spread and 35% volatility. But the paper priced at the rich end of talked terms.

The notes are non-callable for three years and then provisionally callable if shares exceed 130% of the conversion price. There are no puts.

Acorda trading accounted for the lion’s share of Wednesday’s business, or something like $122 million of new Acorda changing hands out of $151 million total volume, according to Trace data.

Proceeds are expected to be used for general corporate purposes, including to fund possible acquisitions of, or investments in, complementary businesses, products and technologies. Acorda has not entered into any agreements or commitments regarding any acquisitions or investments at this time.

EZCorp ends flat

EZCorp’s new 2.125% convertibles opened up on their debut in the secondary market to about 102 bid 102.5 offered after the Austin, Texas-based pawn store operator priced an upsized $200 million of the five year senior notes though the rich end of coupon talk and at the rich end of premium talk.

The new bonds traded just before the market close at 98.75 bid, 99.25 offered with the underlying shares at $11.57.

The bonds slipped in line to about par or slightly weaker, a syndicate source said.

Early on, the new EZCorp deal, which was initially talked at $175 million in size, slid lower in early trading to 99 bid, 100 offered with shares at $11.76, according to a second syndicate source.

The EZCorp shares were lower by about 1% from the issue reference price.

“It lost its appeal,” a New York-based trader said of EZCorp when it was lagging dollar neutral.

In connection with the offering, EZCorp entered into convertible note hedge and warrant transactions, or a call spread. The strike on the warrants is $20.825, which boosts the initial conversion premium from the issuer’s perspective to 75%.

Proceeds of about $18.5 million will be used to pay for the call spread, about $11.9 million of proceeds will be used to repurchase up to 1 million shares of common stock, and about $115 million will be used to repay outstanding borrowings under the company’s revolving credit facility. Remaining proceeds will be used for general corporate purposes.

EZCorp shares ended down 29 cents, or 2.4%, to $11.61 on Wednesday.

Mentioned in this article:

Acorda Therapeutics Inc. Nasdaq: ACOR

EZCorp Inc. Nasdaq: EZPW

Restoration Hardware Holdings Inc. NYSE: RH

Verint Systems Inc. Nasdaq: VRNT

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