Upsized Wright Medical pushes up outright, on hedge; old Wright adds again; Tesla in focus

By Rebecca Melvin

New York, Feb. 10 – Wright Medical Group Inc.’s newly priced 2% convertibles traded up strongly Tuesday on both an outright and hedged basis after the Arlington, Tenn.-based orthopedic medical device company priced an upsized $550 million of the five-year senior notes at the rich end of talked terms.

The new Wright Medical convertibles due 2020 were quoted at 103.875 bid, 104.375 offered versus an underlying share price of $25.72, a Connecticut-based trader said.

On a swap basis, that was up about 2.625 points, the trader said.

A syndicate source confirmed that level on the new bonds at the end of the trading session.

Wright Medical shares closed up 62 cents, or 2.5%, at $25.82.

The new bond was upsized to $550 million from an initially talked $400 million. It priced at par after the close on Monday.

Wright Medical’s older 2% convertibles due 2017, of which $240 million face value will be repurchased with proceeds of the new deal, were also higher, changing hands at 117.27, which was up 1.2 point on the day, according to Trace data.

Elsewhere, Tesla Motors Inc.’s convertibles traded actively and were seen higher by about 0.25 point on a swap basis ahead of earnings expected to be reported by the Palo Alto, Calif.-based electric car maker on Wednesday, a New York-based trader said.

Energy convertibles were weak as the sector took a leg lower in tandem with oil prices, which snapped a four-session winning streak to end sharply lower.

BPZ Resources Inc.’s 8.5% convertibles slumped to 17.75 from about 30 previously, and Goodrich Petroleum Corp.’s 5% convertibles slipped into the upper 30s from the low 40s, according to a market source.

West Texas Intermediate crude oil for March delivery fell $2.35, or 4.5%, to $50.51.

And BPZ shares were also pressured by a downgraded to “sell” from “hold” by Millar Tabak. BPZ’s shares fell 10 cents, or 26%, to $0.2899.

Equities, on the other hand, were higher with the Dow Jones industrial average ending near its session highs at 17,868.76, which was up 139.55 points, or 0.8%. The S&P 500 stock index gained 21.85 points, or 1%, to 2,068.59, and the Nasdaq stock index jumped 61.63 points, or 1.3%, to 4,787.64.

For convertible players, however, it was a “slow day” other than the trading action in the new Wright Medical deal, a New York-based sellsider said.

Wright notches strong debut

Wright Medical’s new 2% convertibles traded up to about 104 versus an underlying share price of $25.72. That was up on a swap basis by about 2.625 points, a Connecticut-based trader said.

Shares added 2.5% on the day.

“Wright Medical was the name of the day,” a trader said.

The new bond was upsized to $550 million in size from an initially talked $400 million. The bonds priced at a 22.5% premium to the $25.20 closing price of Wright Medical shares on Feb. 9. Tornier NV shares closed at $24.93 on the Nasdaq on Feb. 9.

The new notes are subject to modification upon completion of the company’s pending merger with Tornier. After the merger, the company will be known as Wright Medical Group NV, which will fully guarantee obligations under the notes’ indenture.

Joint bookrunners of the deal were J.P. Morgan Securities LLC and Wells Fargo Securities LLC.

In connection with the pricing of the notes, the company entered into convertible note hedge and warrant transactions, or a call spread. The strike on the warrants is $40 per share, which boosts the initial conversion premium from the company’s perspective to 57%.

About $292 million of proceeds will be used to repurchase about $240 million face value of the company’s outstanding 2% convertibles due 2017. Proceeds will also be used for general corporate purposes, including possible acquisitions, and about $51 million will be used to pay the net cost of the call spread.

Tesla edges up ahead of earnings

Tesla’s convertible bonds were down outright, but edged up on a hedged basis against a lower stock price.

Tesla’s 0.25% convertible due 2019, or the A tranche, traded last at 90.8, which was down from 91 and change on Monday, a New York-based trader said.

Tesla’s 1.25% convertible due 2021, or the B tranche, traded last at 88.8, which was also down on an outright basis.

Tesla’s 1.5% convertibles due 2018 were last at about 181, which was down from 182 to 183 on Friday.

Tesla shares shed $1.19, or 0.6%, to $216.29.

On Jan. 7, Tesla shares fell 7% after chief executive Elon Musk said that China sales were “unexpectedly weak” during the fourth quarter.

Tesla’s Model S is one of the most popular electric cars in the United States, despite a starting price of more than $70,000. Last year, Tesla sold an estimated 18,700 cars in the United States

Tesla is expected to report its fourth-quarter earnings results Thursday, with analysts calling for earnings of 30 cents a share on revenue of $1.21 billion for the quarter.

Mentioned in this article:

BPZ Resources Inc. NYSE: BPZ

Goodrich Petroleum Corp. NYSE: GDP

Tesla Motors Inc. Nasdaq: TSLA

Wright Medical Group Inc. Nasdaq: WMGI

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