Collegium convertible notes expand on debut; Oak Street adds; Royal Caribbean active

By Abigail W. Adams

Portland, Me., Feb. 8 – The convertibles primary market was quiet on Wednesday after pricing the first new deal of the week post-close on Tuesday.

While the pipeline has not been as active as hoped, new paper continued to play to strong demand and perform well in the secondary space with Collegium Pharmaceutical Inc.’s offering of convertible notes upsizing and jumping on their aftermarket debut.

The new paper added to an already active secondary space that has seen steady volume over the past few sessions as accounts put money to work.

Wednesday was no exception with buyers in the market despite a red day for equities, a source said.

The Dow Jones industrial average closed Wednesday down 208 points, or 0.61%, the S&P 500 index closed down 1.11%, the Nasdaq Composite index closed down 1.68% and the Russell 2000 index closed down 1.52%.

There was $601 million in reported volume about one hour before the market close with concentrated activity in several issues.

“Everyone’s looking for paper,” a source said.

Oak Street Health Inc.’s 0% convertible notes due 2026 continued to add in heavy volume after CVS formally announced its acquisition of the company for $10.6 billion, although the notes were trading with a degree of uncertainty about the closing of the deal.

Booking Holdings Inc.’s 0.75% convertible notes due 2025 (A3/A-) continued to see heavy trading volume although with little movement in price as the notes are dropped from the Refinitiv convertible indices.

Royal Caribbean Group’s 6% convertible notes due 2025 were active although little changed after reporting earnings.

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 fell back to a par handle as stock continued to decline as the session progressed.

They were changing hands at 100.25 versus a stock price of $27.15 in the late afternoon.

The notes expanded about 3 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 traded to a low of $26.58 and a high of $27.62 before closing at $26.82, a decrease of 4.62%.

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 throughout the session.

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

Oak Street’s stock traded to a low of $34.80 and a high of $35.47 before closing at $35.23, an increase of 4.57%.

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.

The deal is expected to close in 2023; however, there may be some antitrust concerns, a source said.

Index trade

Booking’s 0.75% convertible notes due 2025 continued to see heavy volume with little movement in price as the notes exit the Refinitiv convertible indices.

The 0.75% notes were changing hands at 142.25 versus a stock price of $2,427.37 in the late afternoon, according to a market source.

There was $61 million in reported volume.

Booking’s stock traded to a high of $2,485.97 and a low of $2,420.15 before closing the day at $2,425.08, a decrease of 2.5%.

The 0.75% convertible notes have dominated the volume charts over the past few sessions with the notes set to be dropped from the indices on Wednesday.

Royal Caribbean’s earnings

Royal Caribbean’s 6% convertible notes due 2025 were active although little changed on Wednesday.

The deep-in-the-money 6% notes were largely moving with stock with the notes adding about 1 point outright with stock up a little more than 1%.

The 6% notes were trading at 169.875 versus a stock price of $74.10 in the late afternoon, according to a market source.

There was $17 million in reported volume.

Royal Caribbean’s stock traded to a low of $72.12 and a high of $75.46 before closing at $74.51, up 0.68%.

The 6% notes were active on Wednesday for a variety of reasons with the company reporting earnings, the notes being dropped from the Refinitiv convertible indices and the cruise line operator pricing a straight debt offering.

Royal Caribbean reported an earnings beat after the market close on Tuesday with losses per share of $1.12 versus analyst expectations for losses per share of $1.34.

Revenue was $2.6 billion versus analyst expectations for revenue of $2.61 billion.

The cruise line operator also priced a $700 million offering of seven-year senior priority guarantee notes (B2/B+) on Wednesday at par with a coupon of 7.25% to address its 2023 and 2024 maturities.

The 6% notes are also set to be removed from the Refinitiv convertible indices on Wednesday.

Mentioned in this article:

Booking Holdings Inc. Nasdaq: BKNG

Collegium Pharmaceutical Inc. Nasdaq: COLL

Oak Street Health Inc. NYSE: OSH

Royal Caribbean Group NYSE: RCL

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