Market eyes Medicines convertible offering; Wayfair in focus; Macquarie sees big seller

By Abigail W. Adams

Portland, Me., Dec. 13 – After a period of inactivity, the convertibles primary market returned with a new deal on the horizon, which will be the first and may be the last new paper in December.

Medicines Co. plans to price $150 million of five-year convertible notes after the market close on Thursday.

The deal modeled 0.65 point to 2 points cheap based on assumptions used, sources said.

While Medicines stock got hammered on Thursday, the deal was still expected to price, although final terms were not available as of press time.

Meanwhile, trading remained light in the secondary space with end of the year cleanup activity taking place.

There was movement in some off-the-run yield-y names, which were selling into the bid, a market source said.

Wayfair Inc.’s 1.125% convertible notes due 2024 remained volume movers in the secondary space with the notes trading in a tight outright range.

Macquarie Infrastructure Corp.’s 2.875% convertible notes due July 15, 2019 saw large sellers in the market with the maturity of the notes approaching.

Medicines eyed

Medicines’ plans to price $150 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 3% to 3.5% and an initial conversion premium of 25% to 30%, according to a market source.

The deal was heard to be in the market with a credit spread of 900 basis points over Libor and a 38% vol., a market source said.

Using underwriters’ assumptions, the deal modeled between 0.65 point to 0.7 point cheap, sources said.

While some felt the credit spread was conservative and could be tightened to 800 bps, others said the spread should be 1,000 bps.

The biotech company does not produce revenue and has an $800 million debt load, a market source said.

However, the 38% vol. was seen as conservative by the source, which may have helped to justify the tighter spread.

Using assumptions of 1,000 bps over Libor and a 45% vol., the deal modeled about 2 points cheap at the midpoint of talk.

While the borrow on the stock is decent, the deal will be a hard sell to outright accounts given the two outstanding convertible notes, a source said.

Some were surprised to see a new convertibles offering from the well-known biotech company, especially with its two outstanding issues trading below par.

Sources noted proceeds from the deal would not be used to repay the outstanding convertible notes but rather to support the development of a treatment in the pipeline, which some also found surprising.

Medicines’ 2.5% convertible notes due 2022 traded just shy of 91 with a 5.77% yield on Thursday.

The 2.75% convertible notes due 2023 traded down to 78.5 with the yield 8.5%, according to Trace data.

The notes were trading with credit spreads of 820 bps to 920 bps, a market source said.

The 2.5% convertible notes appeared to be the cheapest out of the three, a source said.

However, the new offering will be more equity sensitive than the outstanding notes which will be a benefit, sources said.

Sarissa Capital Management LP, an affiliate of board chairman Alexander J. Denner, intends to purchase $20 million of the notes, according to a company press release.

Denner is a well-known shareholder activist in the biotech space, and sources saw his purchase of the notes as a vote of confidence.

Medicines’ stock tanked during Thursday’s session, closing just north of its 52-week low. Stock closed Thursday at $19.76, a decrease of 14.50%.

However, the deal was still expected to price, a market source said, which would make it the first deal to price in December.

RH, formerly Restoration Hardware, announced last week that it was “exploring,” an opportunistic $300 million convertible notes offering. However, the deal came amid a brutal sell-off in equities and the deal was placed on hold, sources said.

RH announced Thursday that it was no longer exploring the offering, Prospect News reported.

Wayfair active

Wayfair’s 1.125% convertible notes due 2024 remained active in the secondary space, as they have been for much of the week.

The notes have traded in a tight outright range since last Friday, as Wayfair stock has come in from its highs after announcing Black Friday/Cyber Monday sales figures.

The notes traded just shy of 114 early in the session but closed the day around 111. More than $20 million of the bonds were on the tape by the late afternoon.

The notes have traded between 111 and 114 since last Friday, a market source said.

Wayfair stock closed Thursday at $103.83, a decrease of 3.75%.

Stock has slowly come in since a meteoric rise after the online retailer announced blowout sales figures from the post-Thanksgiving shopping weekend.

The bump in stock lifted the 1.125% convertible notes from below par to their current levels.

Macquarie notes for sale

Macquarie’s 2.875% convertible notes due July 15, 2019 were among the volume movers of Thursday’s session with a large seller in the market.

The notes changed hands outside of the range of 99, which they had been in for the past few days, a market source said.

They were seen changing hands between 98.625 and 98.875.

The notes were “a yield play,” a market source said.

With the short-duration of the notes, they have little conversion value, a market source said. The notes were trading with a 4.8% to 5.3% yield to maturity.

Mentioned in this article:

Macquarie Infrastructure Corp. NYSE: MIC

Medicines Co. Nasdaq: MDCO

RH NYSE: RH

Wayfair Inc. NYSE: W

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