Morning Commentary: Collegium convertible notes jump on debut; Oak Street active

By Abigail W. Adams

Portland, Me., Feb. 8 – It was another active morning in the convertibles secondary space with the first new issue in more than one week making its aftermarket debut and topical news continuing to jumpstart activity.

Collegium Pharmaceutical Inc. priced an upsized $210 million of six-year convertible notes after the market close on Tuesday.

The new paper jumped on an outright and dollar-neutral basis in early trade.

Outside of the new paper, the secondary space was active with accounts continuing to put money to work despite a red morning for equities.

The Dow Jones industrial average was down 87 points, or 0.27%, the S&P 500 index was down 0.72%, the Nasdaq Composite index was down 1.12% and the Russell 2000 index was down 0.79% shortly before 11 a.m. ET.

Oak Street Health Inc.’s 0% convertible notes due 2026 continued to see heavy volume after CVS formally announced its acquisition of the company for $10.6 billion.

While the notes continued to add in early trade, the major move occurred the previous session with the notes trading with a degree of uncertainty about the closing of the deal.

Collegium jumps

Collegium priced an upsized $210 million of six-year convertible notes after the market close on Tuesday at par at the midpoint of talk with a coupon of 2.875% and an initial conversion premium of 30%.

Price talk was for a coupon of 2.625% to 3.125% and an initial conversion premium of 27.5% to 32.5%.

The greenshoe was also upsized to $31.5 million.

The initial size of the offering was $175 million with a greenshoe of $26.25 million.

The new 2.875% notes skyrocketed out of the gate.

They traded as high as 101.75 early in the session and were seen at 101.5 versus a stock price of $27.50 early in the session.

The notes expanded about 2.5 points dollar-neutral, a source said.

The offering was the latest refinancing deal to clear the primary market with the company simultaneously repurchasing $117.4 million in principal of its outstanding 2.625% convertible notes due 2026 for $140.1 million in cash.

The buyback price appeared to be 118.091.

Collegium’s stock was trading at $27.10, a decrease of 3.61%, shortly before 11 a.m. ET.

Oak Street acquisition

Oak Street’s 0% convertible notes due 2026 continued to add in heavy volume on Wednesday after CVS formally announced its acquisition of the company in an all-cash deal with an enterprise value of $10.6 billion.

The 0% notes were up another 0.5 point outright with the notes trading in the 93 to 93.5 context.

“They’re still trading with a bit of uncertainty,” a source said. “That’s a big risk arb spread.”

Oak Street’s stock was changing hands at $35.13, an increase of 4.31%, shortly before 11 a.m. ET.

While the notes were only slightly higher on Wednesday, they jumped 8 points the previous session on news a formal acquisition announcement was imminent.

CVS announced pre-market Wednesday that it would acquire the primary care provider for $39 a share in an all-cash transaction that includes debt.

The 0% convertible notes will be taken out at par in the acquisition.

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