New Medicines convertible notes gain on swap; planned Nevro looks cheap; Zillow jumps

By Rebecca Melvin

New York, June 7 – Medicines Co.’s newly priced convertibles traded up on Tuesday after the Parsippany, N.J.-based health care company priced $350 million of the seven-year senior notes at the midpoint of coupon talk.

The new Medicines 2.75% convertibles due 2023 traded up to about 102 on an outright basis and were seen up on swap by 1.5 points to 2 points, according to a market sources. Medicines shares were up only about 25 cents, or 0.7%, at $37.21 at that point. The shares ended the day up $1.11, or 3%, at $38.07.

Medicines existing convertibles, including the in-the-money 1.375% convertibles, of which $220 million is being repurchased with proceeds of the new deal, edged up in line with shares.

Market players were also sizing up Nevro Corp., which launched an offering for $125 million of five-year convertible senior notes, which were expected to price after the market close.

The new Nevro deal was seen about 2.5 points cheap at the midpoint of price talk, using a credit spread of 700 basis points over Libor and a 40% vol., according to a trader.

“It’s a nice piece of paper,” the trader said, citing the small deal size relative to the company’s larger market capitalization, the fact that it didn’t come to market on an overnight basis, and that is has a five-year maturity, which is favored for being neither too long nor too short.

Nevro shares held in pretty well after the deal launch, ending the day down 70 cents, or 0.95%, at $72.73.

The primary market has perked up in recent days, and the expectation is that pent-up demand should help promote flow going forward.

“The market is open,” a trader said. Last week, two huge new issues priced, namely the $5.5 billion Softbank Group Corp. mandatory securities exchangeable into Alibaba Group Holding Ltd. and the $1.1 billion Weatherford International Ltd., with no adverse effects in the secondary space.

“There was no sell-off. Things seem stable, and there has been good two-way flow. People are fine absorbing new paper if it’s priced right,” the trader said.

After the market close, MTS Systems Corp. launched a $100 million offering of tangible equity units and a concurrent offering of common stock, which is being priced by J.P. Morgan Securities LLC and Wells Fargo Securities LLC.

Back in established issues, Zillow Group Inc.’s 2.75% convertibles, formerly the Trulia Inc. bonds, jumped in early trade to the mid 140s from the mid 130s, according to Trace data, after news that the real estate website settled a lawsuit over trade secrets for $130 million. The suit brought by News Corp.’s Move Inc. and the National Association of Realtors could have cost Zillow much more.

In the filing, Zillow agreed to pay Move $130 million but did not admit to any liability, wrongdoing or responsibility.

New Medicines trades up

Medicines’ new 2.75% convertibles traded up to 102 when shares were higher by about 0.7%, and the paper was seen higher on swap by 1.5 points to 2 points.

“It’s trading up. It seems to be doing fine,” a trader said of the exchange health care issue.

Medicines shares held in well, he noted, “but that was a function of the exchange.”

About $325 million of proceeds of the $350 million deal were earmarked to repurchase $220 million of the company’s existing 1.375% convertibles. Those bonds traded up to as high as 148 on Tuesday, which was higher by a couple of points from Monday.

The company’s other existing convertible, the 2.5% bond, was also steady on a dollar-neutral basis, trading around 129 on Tuesday after being quoted at 126 bid, 126.75 offered against a share price of $36.96 late Monday.

The new issue of convertible senior notes priced at the midpoint of coupon talk and at the rich end of premium talk.

Goldman Sachs & Co. and J.P. Morgan Securities LLC were joint bookrunners of the deal, which has a $52.5 million greenshoe.

The notes are non-callable for four years and then are provisionally callable if shares exceed 130% of the conversion price. There are no investor puts. There is takeover and dividend protection.

Also in connection with the pricing of the notes, the company expects to enter into capped call transactions with one or more of the initial purchasers or affiliates or other financial institutions. A portion of the proceeds will be used to pay the cost of the capped call transactions.

Remaining proceeds are earmarked for general corporate purposes, including working capital and research and development expenditures.

Parsippany, N.J.-based Medicines develops products that improve specialized care.

Planned Nevro seen cheap

Nevro’s planned $125 million of five-year convertibles were seen fair value at 102.5 at the midpoint of price talk, using a credit spread of 700 bps and 40% vol.

The midpoint of talk was for a 2% coupon and 30% initial conversion premium.

“It’s a fairly large market cap, and a small issue, in the mid-tech sector. We understand how to lend to that space,” a trader said.

On the other hand, the company is not flush with cash and the stock is fairly high priced. “I was surprised to see the stock holding in so strongly” after the deal was launched, the trader said.

Nevro plans to price $125 million of five-year convertible senior notes in a registered deal. Proceeds will be used to fund the net cost of the call spread and to repay an existing term loan agreement, including associated closing and repayment fees with Capital Royalty Partners and certain affiliates. Any remaining proceeds are for general corporate purposes, which many include continuing commercialization of its Senza spinal cord stimulation product, funding research and development and increasing working capital.

J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC are the joint bookrunners for the offering, for which there is a greenshoe for up to an additional $18.75 million of notes.

Redwood City, Calif.-based Nevro is a medical device company focused on chronic pain treatments.

Mentioned in this article:

Alibaba Group Holding Ltd. Nasdaq: BABA

Medicines Co. Nasdaq: MDCO

MTS Systems Corp. Nasdaq: MTSC

Nevro Corp. Nasdaq: NVRO

Weatherford International plc NYSE: WFT

Zillow Group Inc. Nasdaq: Z

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.