Aphria looks cheap; Aqua America trades up in gray market; Ionis expands as stock sinks

By Abigail W. Adams

Portland, Me., April 17 – The convertibles primary market was active despite the truncated holiday week with $1.03 billion set to price in two deals after the market close on Wednesday.

Aphria Inc. was expected to price $300 million of five-year convertible notes – the latest dollar-denominated deal from the cannabis sector. Sources pegged the deal as cheap.

However, the borrow on the stock was “non-existent,” a source said.

After an extended roadshow, Aqua America Inc. was slated to price $725 million of $50-par three-year tangible equity units after the market close. The units were bid up in gray market activity.

Meanwhile, there was an uptick of activity in the secondary space on Wednesday.

Health care names were in focus as the sector’s stock got crushed, sources said.

Ionis Pharmaceuticals Inc.’s 1% convertible notes due 2021 were the top traded name of the day with the notes expanding as stock tanked on negative news for the company.

Aphria looks cheap

Aphria plans to price $300 million of five-year convertible notes with price talk for a coupon of 4.75% to 5.25% and an initial conversion premium of 20% to 25%, according to a market source.

The Rule 144A and Regulation S deal is being marketed with a credit spread of 800 basis points over Libor and a 40% vol., according to a market source.

Using those assumptions, sources pegged the deal between 2 and 4 points cheap at the midpoint of talk.

The borrow on the stock is about 5% and is limited. One source described the borrow as “practically non-existent.”

The deal was wall-crossed, a market source said. With a wider audience, it is expected to do well during book-building.

Aphria is the latest cannabis company to tap the convertibles space in a dollar-denominated deal with the sector becoming a formidable portion of the universe.

Aqua up in gray market

After an extended roadshow, Aqua America plans to price $725 million of $50-par three-year tangible equity units after the market close on Wednesday with price talk for a dividend of 6% to 6.5% and a threshold appreciation price of 17.5% to 22.5%.

While some sources did not find tangible equity units appealing due to their limited downside protection, the deal from the Bryn Mawr, Pa.-based water utility offered good exposure to the sector, other sources said.

With several mandatory equity units retiring this year, the new paper is also needed to fill a void in the space.

The deal was heard to be doing well during book-building and were already up 0.5 point to 1.15 points in the gray market, a source said.

Ionis in focus

Ionis Pharmaceuticals’ 1% convertible notes due 2021 were in focus on Wednesday with the notes expanding as stock tanked after the pharmaceutical company was hit by a series of negative news items.

The 1% notes dropped 13 points outright. They were changing hands around 125 in the late afternoon after trading at 138 on Tuesday.

However, the notes were largely trading on hedge. They were expanded 0.625 point to 1 point dollar-neutral, according to a market source.

The notes were previously trading on a 75% delta but switched to a 70% delta.

Ionis stock closed Wednesday at $72.67, down 12.74%.

Stock tanked after Novartis released clinical data on a competing gene therapy to Ionis’ Spinraza.

Stock was also under pressure after Roche announced it would not be presenting data for a Huntington’s disease treatment it had licensed from Ionis at an upcoming meeting of the American Academy of Neurology.

Roche and Ionis previously formed a partnership to develop a treatment for Huntington’s disease.

Mentioned in this article:

Aphria Inc. NYSE: APHA

Aqua America Inc. NYSE: WTR

Ionis Pharmaceuticals Inc. Nasdaq: IONS

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