Onyx stays afloat in gray; Rayonier quiet; Alexandria, Virgin Media gain with earnings

By Kenneth Lim

Boston, Aug. 6 - Onyx Pharmaceuticals, Inc.'s planned offering continued to see robust demand in the gray market on Thursday ahead of pricing, while Rayonier Inc.'s deal was quiet.

Earnings announcements continued to drive activity in the convertible market, with Alexandria Real Estate Equities Inc. moving up following a better-than-expected second quarter report.

Virgin Media Inc. also gained outright after it reported a narrower quarterly loss and guided for a strong second half.

LifePoint Hospitals Inc. saw volume spike ahead of its Friday earnings announcement.

Onyx up in gray

Onyx's planned $200 million of seven-year convertible senior notes was bid at about 101.5 in the gray market on Thursday, with the deal seen as cheap.

The deal is talked to yield 4% to 4.5% with an initial conversion premium of 20% to 25%, with pricing set for Thursday after the market closes.

Onyx common stock closed at $30.67 on Thursday, lower by 1.64% or $0.51.

Bookrunner Goldman Sachs & Co. has an over-allotment option for an additional $30 million in the registered offering.

There is a concurrent public offering of 4 million common shares with a greenshoe of 600,000 shares.

Proceeds will be used to build and diversify the company's pipeline of in-licensing product candidates, for strategic investments and acquisitions, to fund clinical trials, for sales and marketing and for general corporate purposes.

Onyx is an Emeryville, Calif.-based biopharmaceutical company that focuses on cancer treatments.

The deal was seen as relatively cheap, and the concurrent stock offering should be a bonus for convertible investors, a convertible analyst said.

"They're going to have a lot of cash on hand after these two deals are done," the analyst said. "From a balance sheet standpoint this is positive for the credit."

But the analyst said the company's dependence on just one product makes it a risky business, and it remains to be seen whether the new war chest can improve the situation.

"They company hasn't been very communicative in terms of what they're going to do with the money," the analyst said.

"They already have more than $400 million to spend, why are they raising so much more? It's great for the balance sheet now, but you have to wonder what they're eyeing out there. You hope that it's a solid product that's close to market, but then you have to ask what they're going to pay for it. Are they going to wipe out all their cash? Then that's not so great for the balance sheet any more."

The analyst said the deal has to come cheap because of the company's credit profile and because of the pricing levels of other recent deals.

"With the kind of market we're having, you almost have to give up a few points if you're the issuer," the analyst said.

Rayonier quiet in gray

Rayonier's planned $150 million of six-year exchangeable senior notes were quiet in the gray market on Thursday, but some observers said the deal could benefit from being in an underrepresented sector.

Rayonier subsidiary Rayonier TRS Holdings plans to price the deal Thursday after the market closes to yield between 4.75% and 5.25% with an initial conversion premium of 17.5% to 22.5%, market sources said.

The notes will be exchangeable into the parent's common stock.

There is an over-allotment option for an additional $22.5 million.

The bookrunners are Credit Suisse, JPMorgan and Merrill Lynch.

Proceeds will be used to repay debt and to fund exchangeable note hedge and warrant transactions.

Rayonier is a Jacksonville, Fla.-based forest products company.

Rayonier common stock closed at $41.01 on Thursday, lower by 3.03% or $1.28.

"It's a solid company, solid credit, good fundamentals," a sellsider said. "The market must think so too. The stock's almost back to pre-2008 levels."

The sellsider said the deal may draw a good response from investors who want exposure to the forestry sector.

"You don't have a lot of paper out there that's really in the particular space that they're in," the sellsider said.

Alexandria gains with results

Alexandria's 8% convertible due 2029 gained about a point outright to 135.5 versus a stock price of $48.50 on Thursday after the company reported better second-quarter earnings.

The common stock rose 3.16% or $1.46 to close at $47.64.

Alexandria is a Pasadena, Calif.-based real estate investment trust that serves the life sciences industry.

The company on Thursday reported a second-quarter funds from operations of $1.59 per share, beating Street estimates for $1.42 per share. Alexandria also raised its full-year funds from operations to be $5.60 per share, up from its initial forecast of $5.43 per share.

The convertible tracked the stock higher on the news, a convertible trader said. The paper is "so far in the money" that it is not as interesting anymore, the trader said. But the current price also reflects how cheap new issues were coming earlier in the year. Alexandria priced the notes in April 2009.

"That's how amazingly cheap stuff was just a few months ago," the trader said. "But then you had to do it or nobody would have bought your stuff."

Virgin Media rides earnings higher

Virgin Media's 6.5% convertible due 2016 was also slightly higher outright Thursday at 92.5 versus a common stock price of $11.60.

The common stock closed at $11.17, lower by 1.85% or $0.21.

Virgin Media is a New York-based entertainment and communications business focused on the U.K. market.

The company on Thursday reported net loss of £49.3 million, or 15p per share, in its second quarter, compared to a £448.9 million, or £1.36 per share, year-ago loss. Analysts were expecting a loss of about 26p per share.

Virgin chief executive Neil Berkett said the "growth outlook for the second half of the year remains strong."

LifePoint firms before results

LifePoint's 3.5% convertibles due 2014 inched up by about 1 point to change hands at 87.5 versus a stock price of $27.90 Thursday ahead of its Friday results announcement.

Shares of the Brentwood, Tenn.-based rural acute care hospital operator closed at $28.04, lower by 0.99% or $0.28.

"Just people taking positions before earnings," a sellside convertible trader said.

Mentioned in this article

Alexandria Real Estate Equities Inc. NYSE: ARE

LifePoint Hospitals Inc. Nasdaq: LPNT

Onyx Pharmaceuticals, Inc. Nasdaq: ONXX

Rayonier Inc. NYSE: RYN

Virgin Media Inc. Nasdaq: VMED

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