New Medivation, Wintrust edge higher; secondary quiet; overseas new issue market heats up

By Rebecca Melvin

New York, March 14 - Both new convertible bonds released for secondary market trading on Wednesday ended the session at 101 bid, 102 offered, syndicate sources said.

Medivation Inc.'s newly priced 2.625% convertibles traded up initially by about 2 points before coming back in with weak underlying shares.

The Medivation deal was upsized and priced at the cheap end of coupon talk and at the cheaper end of the premium range, which had been raised during marketing.

The deal got somewhat mixed reviews but traded extremely actively. It looks like a good set up for hedged players given the binary outcome seen ahead for the San Francisco-based biopharmaceutical company, but pricing was considered rich given the "big fat premium" of 43.5%, a sellsider said.

A second source said, "It was OK even though pricing was revised."

Wintrust Financial Corp.'s newly priced 5% perpetual convertible preferreds were seen around 101 in late afternoon trading after being par bid in the Street early in the session. The deal priced at the cheap end of talk.

The reaction to the deal was mixed as it was seen significantly cheap, but then the five-year non-call, perpetual preferred stock structure was seen as a drawback.

"We were not big fans of the structure," a New York-based trader said.

Aside from the new deals, market action was fairly quiet, sources said. The A and B series convertibles of Newmont Mining Corp., the Greenwood Village, Colo.-based copper and gold mining company, were in trade and mixed.

Level 3 Communications Inc. wasn't heard in trade after the Broomfield, Colo.-based fiber-based communications services provider exchanged $100 million of its 15% convertibles due 2013 for stock. The amount paid was about 7.5 points to 8 points above the level at which the bonds had been in the market, a New York-based sellsider said.

The Level 3 bonds had been around the 121 level, the sellsider said, and it looks like the company paid 130.75 including 2.66 points of accrued interest versus an underlying share price of $24.02.

In overseas action, China Overseas Grand Oceans Group Ltd. priced HK$2.2 billion of five-year convertible bonds with a 2% coupon that stepped down to 0% after three years, and an initial conversion premium of 30%. German sportswear company Adidas AG launched and priced €500 million of seven-year convertible bonds to yield 0.25% with an initial conversion premium of 40%.

The China Overseas deal was a bought deal that is contingent on investor demand, and the Adidas deal was several times oversubscribed, according to news releases.

The drought that has broken in the U.S. convertible market in the last two weeks is being mirrored in the international market.

Medivation edges up

Medivation's newly priced 2.625% convertibles stood at 100.75 to 101 bid, 102 offered at the market close, versus an underlying share price of $70.55.

Shares slipped 86 cents, or 1.1%, on the day.

"The stock was down a little bit, and this was overpriced, I thought," a sellsider said. "It traded as high as 102 and came in, and given the credit and the fat premium, I thought it was rich."

Still, the deal was upsized by $50 million, and pricing was tightened up during marketing to 42.5% to 45% from 37.5% to 42.5%, while coupon talk remained unchanged at 2.625% to 3.125%.

A very large volume of the new Medivation changed hands and accounted for 25% to 30% of total volume of convertible trading on Wednesday, or about $117 million of bonds, sources said.

"It was OK," one trader said.

The registered, off-the-shelf deal was initially expected to be $175 million in size and was upsized to $225 million.

Pricing came at the rich end of 2.625% to 3.125% coupon talk and toward the cheap end of revised premium talk of 42.5% to 45%.

"There is some major risk on this," a Connecticut-based sellsider said of the company's fundamentals. "It has one phase 3 drug and only pre-clinical stuff with the rest, so it's really a one trick pony."

Still some priced it 3% cheap using a credit spread of 750 basis points over Libor and 45% vol. at the midpoint of talk.

The binary outcome for the company was seen as a lure for hedged funds involved in super high volatility.

"From an outright perspective, it's a pretty big premium, and if they don't get approval, it could be pretty bad for them. I see it as more of a hedge fund trade," an East Coast-based buysider said.

As far as putting a credit spread on the company or the new issue, the buysider said, "it's essentially putting a finger to the air."

He said using 1,000 bps over Libor and 45%, vol. at the midpoint of talk, the deal looked a little bit rich.

There is a $33.75 million greenshoe, which was upsized from $26.25 million.

Citigroup Global Markets Inc. was bookrunner, with Credit Suisse Securities (USA) LLC, Jefferies & Co. Inc., William Blair & Co. LLC and Leerink Swan LLC acting as co-managers.

The notes will be non-callable until April 6, 2015 and then provisionally callable subject to shares trading at 130% of the conversion price for 20 out of 30 trading days.

Proceeds will be used for working capital, including further development and potential commercialization of its product candidates, and for general corporate purposes. Proceeds may also be used to invest in complementary products, technologies or businesses.

Medivation is a San Francisco-based biopharmaceutical company.

Wintrust edges up

Wintrust Financial's newly priced 5% perpetual convertible preferreds were last at 101 bid, 102 offered versus the closing share price of $34.91, a syndicate source said.

Shares of the Lake Forest, Ill.-based financial holding company were down 73 cents, or 2%, on the day.

The new convertible deal, which priced on the cheap end of talk, was seen as much as 6% cheap even with the stock down 2.6% in early trading, using a credit spread of 1,000 bps over Libor and 25% vol., a sellsider said.

The deal was not nearly as actively traded as the Medivation deal. But out of the chute, it was up to 100.5 to 101.5, and it never got below 100.25.

It was placed predominately in outright hands, which were seen putting the paper away with not a lot of secondary market action expected.

Wintrust also has a 7.5% mandatory convertible, which wasn't seen in trade.

Pricing of the $110 million registered, series C preferreds occurred at the cheap end of talk, which was for a dividend of 4.5% to 5% with an initial conversion premium of 17.5% to 22.5%.

The deal has a $16.5 million greenshoe and was sold via bookrunners RBC Capital Markets LLC and Bank of America Merrill Lynch. Co-managers were Sandler O'Neill + Partners LP and Wells Fargo Securities LLC.

The preferreds are non-callable until April 15, 2017 and then provisionally callable if the stock exceeds 130% of the conversion price for 20 out of 30 trading days.

Proceeds are expected to be used for general corporate purposes, including capital support for growth, acquisitions and reducing or refinancing debt.

Mentioned in this article:

Adidas AG Germany: ADS

China Overseas Grand Oceans Group Ltd. Hong Kong: 0081

Level 3 Communications Inc. Nasdaq: LVLT

Medivation Inc. NYSE: MDVN

Newmont Mining Corp. NYSE: NEM

Wintrust Financial Corp. Nasdaq: WFTC

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