Allegheny Technologies drops below par on debut; new Repligen edges up; FXCM tumbles

By Rebecca Melvin

New York, May 19 – Two new issues debuted in the convertibles secondary market on Thursday and accounted for the lion’s share of the day’s trading volume, although pricing performance was weak despite the fact that deal flow has been little more than a trickle all year.

Because new deal volume has been so low, many traders thought Allegheny Technologies Inc.’s $250 million of 4.75% convertibles would trade better. But the new deal traded down below par right out of the gate, along with weaker shares. On a dollar-neutral, or hedged, basis, they improved only about 0.25 point to 0.5 point, a trader said.

“I thought the pricing was compelling,” a New York-based trader said of Allegheny, referring to the paper’s big, chunky coupon and the fact that it priced at the cheap end of talked terms. “So it surprised me that they didn’t do better.”

Repligen Corp.’s new 2.125% convertible did a bit better, but it also came at the cheap end of talked terms and didn’t perform as well as may have been expected. As it was, the bonds moved up to about 101.5 with lower shares. The Waltham, Mass.-based bioprocessing company priced $100 million of the five-year senior notes.

Back in established issues, FXCM Inc.’s 2.25% convertibles due 2018 turned heads when it suddenly dropped about 8 points after not having traded for a while.

One trader said that the sudden drop into the hole should have spurred buyers but it only encouraged more selling. A second trader said that the FXCM bond was expected to drop into the 40s when it finally traded due to the company’s financial struggles.

The international primary market has generally been more vibrant than the U.S. primary space this year. In Europe, BP Capital Markets plc launched an offering of £400 million of seven-year convertible bonds and concurrent call spread, and NV Bekaert SA, a Belgium-based steel wire company, priced €380 million of 0% five-year convertible bond and a concurrent repurchase of convertibles maturing in 2018.

Seaspan Corp., a Hong Kong-based containership leasing company, priced $140 million of 6.95% series F cumulative convertible perpetual preferred shares to a third-party investor based in Asia.

Bekaert was talked as a base deal of €250 million with a €130 million increase option and with a yield between 0% and 0.5% and an initial conversion premium of 27.5% to 35%.

In connection with the offering of bonds, the company is entering into call option agreements, or a call spread, to hedge its exposure to the potential exercise of the conversion rights under the bonds.

Proceeds will be for general corporate purposes and for the purchase of the cash-settled call options.

BP Capital Markets is a unit of oil company BP plc, which is based in London.

New Allegheny drops

Allegheny Technologies’ 4.75% convertibles were quoted at 98.5 to 99 by a New York-based trader.

The company’s shares were down another 2.5% at $11.26 after they plunged 18% on Wednesday.

“Allegheny isn’t faring well today,” the trader said.

A second trader said that the reasons behind the lackluster start were lack of outright support and a tough credit.

Nevertheless, the fact there has been so little new issuance led many to guess that it would do well due to the scarcity value.

But in the face of a real lack of new issuance, “accounts were complaining there was too much paper today,” a trader said.

Allegheny priced $250 million of the five-year notes at par to yield 2.125% with an initial conversion premium of 22.5%.

The registered, off-the-shelf deal priced at the cheap end of talk, which was for a 1.625% to 2.125% coupon and 22.5% to 27.5% premium.

The deal has a $37.5 million over-allotment option.

Citigroup Global Markets Inc., J.P. Morgan Securities LLC and BofA Merrill Lynch are the joint bookrunners for the registered, off-the-shelf deal.

Proceeds are earmarked for general corporate purposes, which may include voluntary or required contributions to the company’s defined benefit pension trust, or the repurchase, repayment or refinancing of debt.

Allegheny is a Pittsburgh-based specialty steel maker.

The deal was not very large, but “at least there were some new deals; there have not been too many,” a trader said.

New Repligen edges up

The Repligen 2.125% convertibles were quoted at 101 to 102. They were last around 101.5 with shares closing down $2.23, or 8.5%, to $23.95.

Repligen priced $100 million of five-year convertible senior notes at a 22.5% premium, which represented the cheap end of talk for a 1.625% to 2.125% coupon and 22.5% to 27.5% premium.

The offering has a $15 million greenshoe and was being sold via Jefferies & Co. as bookrunner, and Janney Montgomery Scott and Craig-Hallum Capital Group as co-managers. Perella Weinberg Partners LP and J. Wood Capital Advisors LLC were financial advisers to the company in connection with the offering.

The notes are non-callable for three years. They have contingent conversion and takeover protection. The company may settle the bonds in cash, shares or a combination of shares and cash at its option.

Proceeds are earmarked for working capital and other general corporate purposes, including possible acquisitions and investments.

Waltham, Mass.-based Repligen is a bioprocessing company focused on the development, production and commercialization of products used in the production of monoclonal antibodies, recombinant proteins and vaccines.

FXCM tumbles

FXCM’s 2.5% convertibles due 2018 traded down to 44 from about 54 to 56 previously, but it had been quite a while since the bonds traded, market sources said.

FXCM shares were slightly lower, down 15 cents, or 1.3%, to $11.35.

“The drop was instantaneous,” a trader said of the bond’s fall. They had been in the high 70s at the beginning of the year, he noted.

The company’s financial woes, namely its Leucadia rescue loan, was blamed for the drop.

“We’ve known for months the next trade was likely to have a 40 handle,” the trader said.

FXCM is a retail and institutional foreign exchange business.

Mentioned in this article:

Allegheny Technologies Inc. NYSE: ATI

FXCM Inc. Nasdaq: FXCM

Repligen Corp. Nasdaq: RGEN

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