Fortive’s convertibles hit market, expand on debut; Intercept contracts; Aceto eyed

By Abigail W. Adams

Portland, Me., Feb. 20 – The largest convertible deal of the year hit the secondary space on Wednesday.

Fortive Corp. priced $1.25 billion of three-year convertible notes.

The new paper accounted for more than one-third of the total trading volume in the secondary space and saw a large dollar-neutral expansion, sources said.

While focus was on the new paper from Fortive, Intercept Pharmaceuticals Inc.’s 3.25% convertible notes due 2023 were contracting in active trading on Wednesday after a large expansion during Tuesday’s session.

Aceto Corp.’s 2% convertible notes due 2020 were also active in the secondary space after the company filed for Chapter 11 bankruptcy protection.

Fortive expands

Fortive priced $1.25 billion of three-year convertible notes after the market close on Tuesday at the rich end of talk at par with a coupon of 0.875% and an initial conversion premium of 32.5%.

Price talk was for a coupon of 0.875% to 1.375% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

Despite pricing at the rich end of talk, the 0.875% convertible notes due 2022 saw a large dollar-neutral expansion right out the gate.

The notes traded up to 104 with stock up slightly about one hour into Wednesday’s session and continued to trade between 103.5 and 104 into the afternoon.

They were expanded 3.5 points dollar-neutral, a market source said.

Fortive stock closed Wednesday at $81.06, an increase of 0.72%.

On a valuation basis, the deal “was nothing exciting,” a market source said. “This is all about it being IG.”

The deal modeled out to fair value at the midpoint of talk, sources said.

S&P Global Ratings rated the convertible notes BBB- and affirmed Fortive’s issuer credit rating as BBB.

The growth rate and volatility of the industrial conglomerate was not great, a market source said. However, the safety of the investment was through the roof.

The deal particularly attracted European convertible investors who typically seek out investment-grade paper, a market source said.

Fortive’s 0.875% convertible notes dominated activity in the secondary space.

The paper accounted for $110 million of the $140 million in trading volume about one hour into Wednesday’s session and $298.5 million of the total $796 million in trading volume by the market close.

Given the demand for investment-grade paper in the convertibles universe, and the terms companies are able to secure, it is a curiosity that more investment-grade companies don’t issue convertible debt, a market source said.

Intercept contracts

After a large dollar-neutral expansion on Tuesday, Intercept Pharmaceuticals’ 3.25% convertible notes due 2023 saw a large contraction during Wednesday’s session.

The 3.25% notes closed Wednesday at 95.75 after closing Tuesday at 101.25, according to a market source.

They were contracted 1.5 points dollar-neutral on Wednesday after expanding 1.5 to 2 points dollar-neutral on Tuesday.

Intercept stock tanked on Wednesday after soaring on Tuesday. Stock traded as high as $119.44 and as low as $98.55 before closing Wednesday at $99.04, a decrease of 15.76%.

Stock jumped after the biotech company reported positive results from its Phase 3 clinical trial for Ocaliva, a treatment for liver disease due to NASH, or nonalcoholic steatohepatitis.

Stock tanked on Wednesday after a closer examination of the clinical results revealed that it was not as effective as initially believed and had some harmful side effects, a market source said.

Intercept plans on filing for approval of the treatment in the United States and Europe in the second half of 2019.

Despite the pitfalls in the clinical trial, it is still widely believed the drug will be met with FDA approval, a market source said.

More than $13 million of the bonds changed hands during Wednesday’s session.

Aceto eyed

Aceto’s 2% convertible notes due 2020 were active in the secondary space on Wednesday after the company filed for Chapter 11 bankruptcy protection.

The small, illiquid issue is typically slow to trade, sources said.

While the 2% notes gained on an outright basis from some odd-lot trades earlier in February, they were down from their previous trading levels in December 2018, sources said.

The 2% convertible notes dropped 5.5 points outright to close Wednesday at 67.5, according to a market source.

More than $9 million of the bonds changed hands during Wednesday’s session.

Aceto filed for Chapter 11 bankruptcy on Wednesday.

However, the human health products and performance chemicals company negotiated the sale of one of its divisions, which took care of its debt, a market source said.

Aceto entered into a purchase agreement with New Mountain Capital for its chemicals business, which included the assumption of liabilities, Prospect News reported.

While the notes were active on Wednesday, the large holders were already largely squared away, a market source said.

There is $143.75 million outstanding of the convertible notes.

Mentioned in this article:

Aceto Corp. Nasdaq: ACET

Fortive Corp. NYSE: FTV

Intercept Pharmaceuticals Inc. Nasdaq: ICPT

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