Morning Commentary: Collegium Pharmaceutical convertible notes eyed in early activity

By Abigail W. Adams

Portland, Me., Feb. 10 – The convertibles primary market launched the week with a new offering.

In an overnight deal, Collegium Pharmaceutical, Inc. plans to price $125 million of six-year convertible notes after the market close on Monday with price talk for a coupon of 2.625% to 3.125% and an initial conversion premium of 30% to 35%, according to a market source.

The deal was heard to be marketed with assumptions of a credit spread of 850 basis points over Libor and a 40% vol., a source said.

Using those assumptions, the deal modeled about 0.31 point cheap at the midpoint of talk, a source said.

However, using a vol. of 45%, the deal modeled 2 points cheap. The vol. on the company’s stock is historically much higher, a source said.

The borrow rate on the stock is good, another source said.

Proceeds from the offering will be used to fund the acquisition of the Nucynta franchise from Assertio Therapeutics Inc.

News that Assertio was selling its Nucynta franchise to Collegium on Friday sent Assertio’s long-busted convertible notes soaring.

While quiet on Monday, Assertio’s 2.5% convertible notes due 2021 and 5% convertible notes due 2024 both skyrocketed from the low 70s to the 97 to 98 range in high-volume activity on Friday.

Assertio, formerly known as Depomed, plans to use proceeds to repay its debt.

Meanwhile, the secondary space was off to a slow start on Monday as equities wavered between gains and losses on the latest coronavirus outbreak news.

There was $52 million in reported volume one hour into Monday’s session.

Okta Inc.’s 0.125% convertible notes due 2025 were in focus early Monday with almost $6 million in reported volume.

The 0.125% notes were changing hands just north of 103 with the software company’s stock up slightly.

Okta’s stock traded to a high of $134.46 shortly after the opening bell but was changing hands at $133.36, an increase of 0.43%, about one hour into the session.

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