Morning Commentary: Innoviva convertibles on tap; secondary quiet with equities volatile

By Abigail W. Adams

Portland, Me., March 2 – The convertibles primary market returned to action on Wednesday with one new offering on deck.

Innoviva Inc. plans to price $200 million of six-year convertible notes after the market close on Wednesday with price talk for a coupon of 2.125% to 2.625% and an initial conversion premium of 30% to 35%.

The deal was heard to be in the market with assumptions of 500 basis points over Libor and a 35% vol., a source said.

Using those assumptions, the deal looked 2.75 points cheap at the midpoint of talk.

While the credit spread seemed on target for the biopharmaceutical company, the vol. assumptions seemed high with a vol. below 30% more reasonable, a source said.

Innoviva is a well-known name in the convertibles universe with two outstanding issues.

Proceeds from the current offering will be used to repurchase for cash a portion of the company’s 2.125% convertible notes due 2023.

Innoviva issued $287.5 million of the 2.125% notes in 2013 under its former name Theravance Inc.

Meanwhile, it was a quiet morning in the convertibles secondary space as equity markets turned positive following president Joe Biden’s State of the Union address.

The Dow Jones industrial average was up 386 points, or 1.16%, the Nasdaq Composite was up 0.21% after briefly dipping into negative territory, the S&P 500 index was up 0.89% and the Russell 2000 index was up 1.53%.

While equity markets were broadly positive, the tech sector underperformed with several high-flying growth stocks negative as Federal Reserve chairman Jerome Powell addressed Congress and reaffirmed the Central Bank’s commitment to a March rate hike.

However, the volatility did not translate into trading activity with $65 million in reported secondary trading volume about one hour into Wednesday’s session.

No name saw more than $5 million in reported volume early in the session, a source said.

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