Sucampo prices upsized deal, trades over par; trader speculates Orexigen being repurchased

By Stephanie N. Rotondo

Seattle, Dec. 21 – The convertible bond primary market wasn’t quite done for the year, as Sucampo Pharmaceuticals Inc. brought an upsized $260 million of 3.25% convertible senior notes due 2021 on Wednesday.

The deal came with an initial conversion premium of 25%, compared to the 25% to 30% talk. Yield was talked in a 2.75% to 3.25% range.

Leerink Partners ran the books on the Rule 144A offering. The deal came upsized from $225 million.

Toward the end of the day, the new issue was seen in a 103 to 103.5 context.

The underlying stock was down 42 cents, or 3.2%, at $12.85.

A trader said that the new issue was making up the bulk of the day’s total trading volume as of mid-morning. Of the $118 million in convertible bonds that had traded, he said $64 million was Sucampo.

He pegged the paper at 103.125 bid, 103.6.25 offered versus a stock price of $12.85.

“Everything does well,” the trader said of the new securities, citing the market’s hefty appetite for new deals. He also noted that it was “normal” for the stock to decline in the wake of a new issue.

“Guys were probably shorting this yesterday,” he said.

Assuming the company’s $40 million greenshoe is fully exercised, the deal would bring issuance for the month to nearly $3.5 billion.

The bonds are convertible into class A common stock at a rate of 60.2637 shares per each $1,000 of notes. That represents a share price of $16.59, a 25% premium over Tuesday’s closing share price of $13.275.

Proceeds will be used to pay down a credit facility and for general corporate purposes.

Orexigen, Twitter notable

As for notable secondary moves, a trader said Orexigen Therapeutics Inc.’s 2.75% convertible notes due 2020 had a sizable gain recently, speculating that it was the company following through on its plans to repurchase the debt.

The paper had been trading “at 18 in small quantities for a couple of months,” the trader said. On Tuesday, the La Jolla, Calif.-based pharmaceutical company said it had amended the indenture under its 0% convertible notes due 2020 that would allow the company to buy back some of the 2.75% convertibles. In response, the debt traded as high as 28.25 during the session.

If his theory is correct, the trader estimates that the company bought back $30 million to $40 million of the paper. Given the discount, he pointed out that it would take only $7 million to take out $25 million.

“That takes a lot of debt off the books,” he said.

Meanwhile, Twitter Inc.’s convertibles were oddly silent as it was reported that two more executives had jumped ship.

The stock, however, declined 85 cents, or 4.74%, to $17.07.

Adam Messinger, Twitter’s chief technology officer for the last five years, said he was leaving the company on Tuesday. Additionally, Josh McFarland, the vice president of product, also announced his departure.

The exits are the latest in a string of moves away from the social media company. At least 12 executives have left during 2016 – which raises red flags for investors, especially when a company is in the midst of a turnaround effort.

Mentioned in this article:

Orexigen Therapeutics Inc. Nasdaq: OREX

Sucampo Pharmaceuticals Inc. Nasdaq: SCMP

Twitter Inc. NYSE: TWTR

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