Morning Commentary: Collegium convertible offering eyed; Oak Street notes soar

By Abigail W. Adams

Portland, Me., Feb. 7 – While Bed Bath & Beyond Inc.’s pricing of series A convertible preferred stock and warrants captivated headlines with the equity-linked financing staving off the distressed retailer’s imminent bankruptcy filing, it was Collegium Pharmaceutical Inc.’s offering of $175 million of six-year convertible notes that market players were eyeing.

Collegium Pharmaceuticals plans to price $175 million of six-year convertible notes after the market close on Tuesday.

The small refinancing deal looked cheap based on underwriters’ assumptions with holders of the outstanding notes poised to gain from the repurchase.

Meanwhile, it was an active morning in the secondary space with topical and earnings-related news jumpstarting activity in outstanding issues.

While equities launched the day in the red as markets continued to question the Federal Reserve’s path forward, they turned mixed as the session progressed.

The Dow Jones industrial average was down 117 points, or 0.35%, the S&P 500 index was down 0.19%, the Nasdaq Composite index was up 0.01% and the Russell 2000 index was down 0.90% shortly before 11 a.m. ET.

There was $155 million in reported volume about one hour into the session.

Oak Street Health Inc.’s 0% convertible notes due 2026 rocketed higher in heavy volume on news that CVS could announce its acquisition of the company by the end of the week.

Collegium eyed

Collegium plans to price $175 million of six-year convertible notes after the market close on Tuesday with price talk for a coupon of 2.625% to 3.125% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of a 625 bps credit spread and a 38% vol., according to a market source.

Using those assumptions, the deal looked about 0.625 point cheap at the midpoint of talk, a source said.

Another source pegged the offering as 1.5 points cheap at the midpoint of talk.

The deal is coming as a refinancing with proceeds to be used to repurchase a portion of the company’s 2.625% convertible notes due 2026 in privately negotiated transactions.

While the new notes do not model as cheap as some other recent deals, holders of the outstanding notes are most likely making out on the repurchase to entice them to switch into the new issue, a source said.

Oak Street’s takeout

Oak Street’s 0% convertible notes due 2026 rocketed higher in heavy volume on Tuesday on reports CVS was on the verge of announcing its acquisition of the health care provider.

The 0% notes climbed almost 9 points outright on the news.

The notes were changing hands at 93.125 about one hour into the session.

There was $32 million in reported volume.

Oak Street’s stock was seen at $33.92, an increase of 30.78% shortly before 11 a.m. ET.

News broke on Tuesday that CVS was nearing its acquisition of Oak Street for $10.5 billion, including debt, with an announcement coming soon.

Oak Street’s 0% convertible notes shot higher in early January following reports CVS and Oak Street were in acquisition talks.

The notes traded as high as 89 following the news but gave back some gains and were wrapped around 85 heading into Tuesday’s session.

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