Morning Commentary: Nutanix, Patrick deals seen cheap, Exact Sciences is ‘murder today’

By Abigail W. Adams

Portland, Me., Jan. 17 – Genocea Biosciences Inc. priced a small offering of convertible preferreds before the market open on Wednesday but two bigger deals are in the works with plans to price after the market close.

Nutanix Inc. plans to price $400 million in five-year convertible notes with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 25% to 30%, according to a market source.

Using a credit spread of 350 bps over Libor and a 40% volatility, the Nutanix deal looked to be about 2.25 points cheap at the mid-point of talk, a market source said.

“I think Nutanix will do really well,” the source added.

Patrick Industries Inc. plans to price $125 million in five-year convertible notes with price talk for a coupon of 0.875% to 1.375% and an initial conversion premium of 25% to 30%, according to a market source.

Using a credit spread of 275 bps and a 33% volatility, the deal looks to be about 1 point cheap at the mid-point of talk, a market source said.

“It should do okay in this market,” the source commented.

The Elkhart, Ind.-based manufacturer and distributor of component products for the recreational vehicle, manufactured housing and marine industries is a first time issuer of convertible notes.

The industrial company is an outlier in a convertibles market dominated by the tech and health care sectors, but with a shortage of new paper in a contracted market, buyers may be interested in some diversified offerings.

Genocea Biosciences priced $1.6 million in series A convertible preferred stock and accompanying class A warrants.

The convertible preferred stock priced alongside a concurrent offering of $53.4 million in common stock and class A warrants at a price of $1.00 per share, according to a company release.

New Enterprise Associates and Vivo Capital are significant investors in the Cambridge, Mass-based biopharmaceutical company’s offerings.

Vivo Capital participated in the preferred and common stock offering and New Enterprise Associates participated in the common stock offering.

While the primary market prepares new paper, Exact Sciences Corp.’s recently priced offering of 1% convertible notes due 2025 “is murder today,” a market source said.

The 1% convertible notes were trading at 96 to 97, versus an equity price of $45 to $46, a decrease of about 10%.

While the notes are still trading in line and are actually up a little on a dollar-neutral basis, the 5 point drop is bad news for outright buyers, the source said.

The $600 million deal with a $90 million greenshoe, “just stuffed the whole convertibles market,” the source said. “If the stock keeps cracking, nobody will be happy about it.”

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