Fortive offers $1.25 billion convertibles; Ovid on tap; Western Digital, Intercept eyed

By Abigail W. Adams

Portland, Me., Feb. 19 – Tuesday opened with the primary market launching the largest convertible offering of the year.

Fortive Corp. plans to price $1.25 billion of three-year convertible notes after the market close on Tuesday.

While sources pegged the deal rich to fair value, the paper from the large cap investment-grade company attracted cross-over investors and was trading up in the gray market, sources said.

Ovid Therapeutics Inc. is on tap with a convertible preferred stock offering, which is pricing concurrently with a public stock offering.

Cowen and Co. LLC and William Blair & Co. LLC are joint bookrunners for the registered offerings.

Meanwhile, the secondary space was off to a relatively slow start in the return from the extended Presidents Day weekend, sources said.

Western Digital Corp.’s 1.5% convertible notes due 2024 were major volume movers in the secondary space with accounts most likely making room for the new paper from Fortive, a market source said.

Intercept Pharmaceuticals Inc.’s 3.25% convertible notes due 2023 saw large gains on both an outright and dollar-neutral basis as stock soared after the pharmaceutical company announced positive results from a clinical trial.

Fortive eyed

Fortive plans to price $1.25 billion of three-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.875% to 1.375% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The deal marks the largest to date in 2019.

Underwriters are marketing the deal with a credit spread of 80 basis points over Libor and a 23% vol., market sources said.

Using those assumptions, the deal modeled out to fair value, a market source said. However, one source felt the underwriters were being aggressive on the vol.

Using more conservative assumptions of 100 bps over Libor and a 20% vol., the deal modeled about 1.5 points rich, a market source said.

The few points of vol. made an enormous difference in the valuation of the deal.

However, Fortive is an investment-grade company and will do well based on its rating, a source said. The short three-year duration of the notes is also a huge benefit to the deal, a source said.

“Those are some big pluses,” the source said.

However, the company may not rate the convertible bonds, which is a disappointment given the scarcity of investment-grade convertible bonds in the universe, a market source said.

The convertible bonds were attracting cross-over investors. They were heard to already be bid up by 1 point in the gray market, a source said.

Western Digital active

Western Digital’s 1.5% convertible notes due 2024 were major volume movers in the secondary space with accounts most likely making room for the new paper from Fortive, a market source said.

The notes were changing hands between 88 and 88.5 on Tuesday, a market source said.

More than $24 million of the bonds were on the tape on Tuesday.

Western Digital stock traded up to $48.99 on Tuesday but closed the day largely flat at $48.00, an increase of 0.73%.

The 1.5% notes have made gains in high-volume activity since reporting earnings in late January.

Intercept expands

Intercept Pharmaceuticals’ 3.25% convertible notes due 2023 saw large gains on both an outright and dollar-neutral basis on Tuesday as stock soared on the heels of positive clinical results.

The 3.25% convertible notes traded as high as 107 early in Tuesday’s session but came in to close the day at 101.25, according to a market source.

The notes closed Friday at 97.

They were expanded 1.5 to 2 points dollar-neutral, a market source said.

Intercept stock traded as high as $131.87 early in the session but came in to close Tuesday at $117.57, an increase of 6.09%.

Stock skyrocketed after the biopharmaceutical company reported positive results from its Phase 3 clinical trial for Ocaliva, a treatment for a fatty liver disease.

The company plans on filing for approval of the treatment in the United States and Europe in the second half of 2019.

If approved, the medication would be the first approved treatment for liver disease due to NASH, or nonalcoholic steatohepatitis.

Mentioned in this article:

Fortive Corp. NYSE: FTV

Intercept Pharmaceuticals Inc. Nasdaq: ICPT

Western Digital Corp. Nasdaq: WDC

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