Morning Commentary: Elanco Animal Health equity units hit aftermarket; BofA downsizes

By Abigail W. Adams

Portland, Me., Jan. 23 – Thursday opened with the first new paper of the week entering the convertible secondary space.

Elanco Animal Health Inc. priced $550 million, or 11 million units, of three-year par of $50 tangible equity units after the market close on Wednesday at par to yield 5% with a threshold appreciation premium of 20%.

Pricing came in line with talk for a fixed dividend of 5% and a fixed threshold appreciation premium of 20%, according to a market source.

The units were active in the secondary space. While they were trading up on an outright basis, they were largely flat dollar-neutral, a source said.

The notes were quoted at $54.5 bid, $55 offered versus a stock price of $32.25 soon after the opening bell.

More than 990,000 units had changed hands by 11 a.m. ET.

BofA Finance LLC priced a downsized $300 million offering of 2.6-year cash-settled notes tied to Charter Communications Inc. after the market close on Wednesday with a reoffer price of 103.25, a coupon of 0.125% an initial conversion premium of 22.5%, according to a market source.

Pricing came wider than talk for a reoffer price of 104 and at the cheap end of talk for a coupon of 0% to 0.125% and an initial conversion premium of 22.5% to 25%, according to market sources.

The initial size of the deal was $500 million.

Sources were less than enthusiastic about the synthetic offering, which is one of several that have recently come to the market.

Barclays Bank plc plans to price $250 million five-year cash-settled equity-linked notes tied to Microsoft Corp. after the market close with price talk for a fixed coupon of 0%, a fixed conversion premium of 20% and a reoffer price of 104 to 104.5, a market source said.

The notes were being marketed with assumptions of 65 bps over Libor and a 25% vol.

Using those assumptions, the fair value of the notes was about 102.84 with a coupon of 0% and a premium of 20%, according to a market source.

J.P. Morgan Chase Bank, NA priced $500 million three-year cash-settled bonds exchangeable for Alibaba Group Holding Ltd. shares with a reoffer price of 109.5, a coupon of 0.125% and a premium of 20% on Jan. 9.

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