Microchip plans $1 billion new deal; Gilead Sciences in focus; Brocade lifts with shares

By Rebecca Melvin

New York, Feb. 4 – Following a pretty uneventful trading session on Wednesday, Microchip Technology Inc. launched an offering of $1 billion of 10-year convertible senior subordinated notes that the Chandler, Ariz.-based semiconductor maker planned to price after the market close on Thursday.

Proceeds of the large, new deal will be used to retire Microchip’s existing 2.125% convertibles due 2037, which traded on Wednesday at about 180.

Elsewhere, Gilead Sciences Inc. was a focus among convertibles traders after the Foster City, Calif.-based biopharmaceutical giant posted earnings that sent its shares lower by 8%.

Gilead’s 1.625% convertibles due 2016 fell about 30 points on an outright basis – but were still well above quadruple par – at about 430. That pricing was said to be at around parity or parity minus a point, market sources said.

Brocade Communications Systems Inc. saw some demand for its 1.375% convertible due 2020, which priced last month. The Brocade convertibles were up a bit at 104.875 bid, 105.125 offered with the underlying shares at $11.78, a New York-based sellsider said.

Even as oil prices dropped back sharply from a four-day rally, there wasn’t much activity in the energy space, a New York-based trader said.

West Texas intermediate crude oil for March delivery fell $4.45, or 8.4% to $48.60 per barrel. Brent crude oil fell 6.5% to $54.16 per barrel.

The U.S. Energy Information Administration reported Wednesday that U.S. crude supplies jumped by 6.3 million barrels last week to 413.056 million, which was well above the 3.5 million barrels of build that were expected.

Energy XXI (Bermuda) Ltd.’s beleaguered 3% convertibles due 2018 traded down a point at 34.5, according to Trace. But otherwise there were no convertible energy names in action to speak of.

Convertibles in the energy sector are “especially dull,” the trader said. “I think it means that bets are in, and people are reluctant to move in either direction.”

Although energy was notably quiet amid uncertainty regarding when the market might turn around from its currently depressed pricing, the same could be said of the overall convertibles market.

“I think people are waiting on earnings. There are a number of earnings coming out Thursday, including Twitter Inc., and a lot next week,” a New York-based trader said.

Equity markets ended fractionally mixed.

Microchip deal on tap

Microchip, the chip maker based in Chandler, Ariz., launched an offering of $1 billion of 10-year convertible senior subordinated notes after the market close Wednesday that were expected to price after the market close on Thursday. The convertibles were talked to yield 1.625% to 2.125% with an initial conversion premium of 37.5% to 42.5%, according to market sources.

The Rule 144A offering has an over-allotment option for $150 million of additional notes and was being sold via joint bookrunners J.P. Morgan Securities LLC and Wells Fargo Securities LLC, with passive bookrunners BofA Merrill Lynch, BMO Capital Markets Corp., HSBC Securities (USA) Inc. and U.S. Bank.

The notes are non-callable with no puts except a takeover put.

Proceeds will be used to retire a portion of the company’s outstanding 2.125% convertibles due 2037 concurrently with the pricing of the new deal. Remaining proceeds will be used to reduce borrowings under its credit facility, which was amended on Wednesday.

Gilead trades around parity

Gilead’s 1.625% convertibles due 2016 fell about 30 points on an outright basis to about 430. That was seen little changed on a relative value basis, or around parity to parity minus one.

Gilead shares were down $8.75, or 8%, to $98.43.

“Gilead is the stock story of the day, post earnings,” a New York-based trader said.

The stock drop came despite the fact that the earnings came concurrently with a dividend payout announcement and approval to repurchase of up to an additional $15 billion of the company’s stock.

Investors seemed rattled by Gilead’s mixed outlook for its hepatitis C drug as that market has become increasingly competitive. In December, competitor AbbVie Inc. won approval for rival therapy Viekira Pak, and Merck & Co. also has a hepatitis C treatment expected to come on line.

Gilead now said that it expects to discount 46% of its new hepatitis C drugs, up more than double from 22% last year.

Mentioned in this article:

Brocade Communications Systems Inc. Nasdaq: BRCD

Energy XXI (Bermuda) Inc. Nasdaq: EXXI

Gilead Sciences Inc. Nasdaq: GILD

Microchip Technology Inc. Nasdaq: MCHP

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