Collegium convertible offering eyed; Oak Street notes soar; Chegg notes up on swap

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 and was expected to do well with holders of the outstanding notes piling into the new issue.

Meanwhile, it was an active day in the secondary space with topical and earnings-related news jumpstarting activity in outstanding issues as equity indexes shook off early losses and closed the day with strong gains after a speech from Federal Reserve chair Jerome Powell.

The Dow Jones industrial average closed Tuesday up 266 points, or 0.78%, the S&P 500 index closed up 1.29%, the Nasdaq Composite index closed up 1.90% and the Russell 2000 index closed up 0.76%.

There was $155 million in reported volume about one hour into the session and $576 million on the tape about one hour before the market close.

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.

Chegg Inc.’s convertible notes were also in the spotlight with the notes expanding as stock dived double digits following earnings.

Collegium in focus

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 basis points 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.

Collegium is not an on-the-run name; however, the exchange was driving demand for the new paper with allocations expected to be tight.

Collegium’s 2.625% convertible notes due 2026 last traded on Monday at 115, according to Trace data.

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 about 8 points outright on the news.

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

They gave back some gains and were seen at 92 in the late afternoon.

There was $44 million in reported volume.

Oak Street’s stock traded to a low of $33.42 and a high of $34.63 before closing at $33.68, an increase of 29.74%.

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.

Chegg’s earnings

Chegg’s convertible notes also saw heavy volume on Tuesday with the notes lower outright but expanding on swap as stock nosedived following earnings.

Chegg’s 0.125% convertible notes due 2025 were trading at 88.125 versus a stock price of $16.99 in the late afternoon.

They expanded 1 point dollar-neutral, a source said.

There was $38 million in reported volume.

Chegg’s 0% convertible notes due 2026 were changing hands at 78.625 versus a stock price of $16.67 in the late afternoon.

They were unchanged to expanded about 0.25 point dollar-neutral.

There was $12 million in reported volume.

Chegg’s stock traded to a low of $16.12 and a high of $17.58 before closing at $17.43, a decrease of 17.12%.

The company bested expectations with earnings per share of 40 cents versus analyst expectations for earnings of 38 cents and revenue of $205.19 million versus analyst expectations for revenue of $202.10 million.

However, stock tanked on weak guidance.

Mentioned in this article:

Chegg Inc. NYSE: CHGG

Collegium Pharmaceutical Inc. Nasdaq: COLL

Oak Street Health Inc. NYSE: OSH

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