Sarepta convertibles skyrocket; PTC Therapeutics drops; Canopy gains; Sea, Twitter active

By Abigail W. Adams

Portland, Me., June 19 – New deal activity in the convertibles space is expected to be light as the end of the month approaches. However, there are still new deals in the works.

Redwood Trust Inc. plans to price $200 million of six-year convertible notes after the market close on Wednesday with price talk for a coupon of 5.125% to 5.625% and an initial conversion premium of 6% to 10%, according to a market source.

Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC and Wells Fargo Securities LLC are the joint bookrunners for the registered offering, which carries a greenshoe of $30 million.

Meanwhile, the convertible secondary space was off to a crawl on Tuesday with $50 million on the tape early in the session. Trading activity picked up in the afternoon although it remained modest, sources said.

Sarepta Therapeutics Inc.’s 1.5% convertible notes due 2024 were making large gains on an outright and dollar-neutral basis on Tuesday as its stock soared more than 35% after the company released positive clinical data.

While Sarepta reached new heights on Tuesday, PTC Therapeutics Inc.’s 3% convertible notes due 2022 dropped back to its previous levels after spiking on Monday.

Sarepta and PTC are competitors with both companies working to bring treatments for muscular dystrophy to the market. Sarepta’s data sparked a “knee-jerk” reaction to sell PTC, a market source said.

Canopy Growth Corp.’s 4.25% convertible notes due 2023 continued to see gains in secondary trading as the company’s stock continued to climb.

Sea Ltd.’s newly priced 2.25% convertible notes due 2023 and Twitter Inc.’s newly priced 0.25% convertible notes due 2024 were also active on the tape.

Sources attributed the relatively low trading volume on Tuesday to market conditions.

“With the equity move and the treasury move, people are waiting to see if it rolls into credit or not,” the source said.

The Dow Jones industrial average was down 329 points and the yield on the 10-year Treasury note down to 2.883% early in the session.

“People are trying to figure out if this is a bond opportunity,” the source said early Tuesday.

The choppiness in equity markets continued throughout the session with the Dow closing Tuesday down 287 points.

Sarepta soars

Sarepta’s 1.5% convertible notes due 2024 saw large gains on an outright and dollar-neutral basis on Tuesday, a market source said.

The notes shot north of double par as stock skyrocketed more than 35%. The notes traded as high as 236 on Tuesday but closed the day around 205.86, sources said.

The notes closed Monday at 160, according to Trace data.

While the notes climbed more than 45 points outright, they were also seeing gains on a dollar-neutral basis.

“They opened up a few points at least,” a market source said. “It all depends on the delta.”

Sarepta stock traded to a high of $176.50 and a low of $135.72 before closing Tuesday at $143.92, an increase of 36.75%.

Stock soared after the company released positive preliminary results from its clinical trial of a gene therapy to treat a rare form of muscular dystrophy.

Sarepta’s 1.5% convertible notes due 2024 priced in November 2017 and have outperformed since hitting the market.

Company stock was $52.44 when the convertible notes priced with a conversion price of $73.42 on Nov. 8.

PTC Therapeutics drops

After reaching new heights on Monday, PTC Therapeutics’ 3% convertible notes due 2022 gave up their gains and sank back to their previous levels.

The notes dropped more than 14 points to close Tuesday at 99.25. PTC stock closed Tuesday at $33.21, a decrease of 30.64%.

PTC Therapeutics’ 3% convertible notes due 2022 traded as high as 116.5 outright and expanded about 4 points dollar-neutral with stock up more than 30% in intraday trading.

PTC’s meteoric rise on Monday came after the company announced positive interim results from a clinical study of a drug candidate to treat muscular dystrophy.

Sarepta and PTC Therapeutics are competitors although there is a difference in their products, a market source said.

Sarepta’s rise triggered a “knee jerk” reaction to sell PTC. “I don’t think it’s a zero-sum game. I think they can coexist,” the source said.

Canopy going strong

While U.S. equity markets plummeted on Tuesday, the Toronto Stock Exchange saw only minor losses, and Canopy Growth’s stocks were among the gainers.

Canopy’s newly priced 4.25% convertible notes due 2023 climbed more than 2 points as its stock rose 7%.

The notes were seen trading at 104 bid, 105 offered in the late afternoon after closing Monday at 101.75 bid, 102.75 offered.

Canopy stock closed Tuesday at C$42.53, an increase of 4.62%.

While sources have said hedging of the notes is difficult, hedge players were among the initial purchasers of the notes.

However, the deal was heavily allocated to a fundamental group of investors, a market source said.

Sea, Twitter active

Sea’s recently priced 2.25% convertible notes due 2023 and Twitter’s recently priced 0.25% convertible notes due 2024 were active as the underlying equity of both companies dropped on Tuesday.

Sea’s 2.25% notes were down 2 points outright to trade at 102 with the company’s American Depositary Shares down 60 cents to 70 cents early in the session.

The notes rallied later in the day alongside its equity to close the day at 103.291, according to Trace data. Sea’s shares closed Tuesday at $15.10, a decrease of 2.95%.

While the 2.25% notes backed off their initial 3 points dollar-neutral expansion when the notes first hit the market on June 14, they were still expanded 2 points dollar neutral from pricing, a market source said early in the session.

Twitter’s 0.25% convertible notes due 2024 were also active on Tuesday with the notes down about 1.5 points to trade around 104.5. The notes were trading in line dollar neutral, a market source said.

Twitter stock closed Tuesday at $44.80, a decrease of 2.61%.

Mentioned in this article:

Canopy Growth Corp. TSE: WEED, NYSE: CGC

PTC Therapeutics Inc. Nasdaq: PTCT

Redwood Trust Inc. NYSE: RWT

Sarepta Therapeutics Inc. Nasdaq: SRPT

Sea Ltd. NYSE: SE

Twitter Inc. NYSE: TWTR

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