Aurora Cannabis convertibles offering eyed; Energizer flat; Ligand sees slight rebound

By Abigail W. Adams

Portland, Me., Jan. 17 – Market players were eyeing the first convertible bond deal of the year, which was set to price after the market close.

Aurora Cannabis Inc. planned to price $250 million of five-year convertible notes after the market close on Thursday.

The terms of the deal were attractive. However, the borrow on the stock is difficult, making it hard to value, sources said.

While the primary prepares the first convertible bond deal of the year, a convertible preferred stock deal is also in the works.

Sunesis Pharmaceuticals Inc. plans to price an offering of series E convertible preferred stock after the market close on Thursday, according to a 424B5 filing and a market source.

Wells Fargo Securities LLC and Oppenheimer & Co. are bookrunners for the registered offering, which is pricing concurrently with a common stock offering.

Energizer Holdings, Inc.’s newly priced $100-par 7.5% mandatory convertible preferred stock due 2022 remained active their second day in the secondary space with the notes coming in slightly.

Ligand Pharmaceuticals Inc.’s 0.75% convertible notes due 2023 saw a slight rebound after tanking on Thursday following a report from short-seller Andrew Left’s Citron Research.

Medicines Co.’s 3.5% convertible notes due 2024 saw a fresh round of activity on Thursday with the notes continuing to improve.

Aurora eyed

Aurora Cannabis planned to price $250 million of five-year convertible notes in a Rule 144A and Regulation S deal after the market close on Thursday with price talk for a coupon of 5% to 5.5% and an initial conversion premium of 10% to 15%.

The deal is being marketed with a credit spread of 500 basis points over Libor and a 40% vol. The terms are attractive and the deal looks incredibly cheap, sources said.

Using underwriters’ assumptions, the deal models about 6 points cheap at the midpoint of talk, a source said.

Assuming a 45% vol., the deal looks 8 points cheap at the midpoint of talk, another source said.

However, the borrow on the stock is difficult, making its valuation hard, sources said. The borrow is about 10%.

The attractive deal terms are most likely to compensate for the borrow, a source said.

The convertible bonds look attractive based on the company’s growth potential, another source said. However, the investment is risky, the source said.

Some investors were passing on the deal due to the risks involved in the cannabis industry.

“It’s hard to beat in terms of the terms, but it’s still technically illegal in the U.S.,” a source said.

The future size of the market is also difficult to determine, the source said.

While high risk, the deal also has the potential for high rewards, a source said.

It was heard to be at par bid in the gray market.

Energizer comes in

Energizer Holdings’ newly priced $100-par 7.5% mandatory convertible preferred stock due 2022 remained active their second day in the secondary space with the notes coming in slightly, according to a market source.

The new paper closed Thursday at $101.75, a decrease of 54 cents or 0.53%. More than 500,000 shares changed hands during Thursday’s session.

Energizer common stock closed Thursday at $46.83, an increase of 0.49%.

The mandatory convertible preferred stock priced concurrently with a common stock offering, which priced at $46.00 per share.

The 7.5% mandatory convertible preferred stock traded up to 102.75 and expanded about 0.75 point on their market debut on Wednesday.

Ligand rebounds

Ligand Pharmaceuticals’ 0.75% convertible notes due 2023 saw a slight rebound on Thursday after the notes were bludgeoned during Wednesday’s session.

The notes traded as high as 84 but came in to trade at 83.25 in the late afternoon.

The notes were improved about 0.75 point dollar-neutral, a market source said.

Ligand stock traded as high as $115.45 but came in as the session progressed and closed the day at $110.74, an increase of 0.63%.

Ligand’s 0.75% convertible notes due 2023 took a beating on Wednesday, dropping more than 6 points outright and contracting 3 points dollar-neutral after short-seller Left’s Citron Research took aim at the company.

Citron Research released a report, which questioned Ligand’s claims of revenue from royalties from drugs from its strategic partners. The report set a price target of $35.00 on Ligand stock.

Medicines active

Medicines’ 3.5% convertible notes due 2024, one of the last deals to price in 2018, were active during Thursday’s session.

The notes were improved on an outright basis and were expanded several points dollar-neutral since hitting the market in mid-December, a market source said.

The notes were up about 0.5 point outright to 102 in the late afternoon. Medicines stock closed Thursday at $19.93, an increase of 0.66%.

The notes were largely trading below par until last week when stock rebounded from its late December lows. Stock was $19.76 when the notes priced on Dec. 13.

Mentioned in this article:

Aurora Cannabis Inc. NYSE: ACB

Energizer Holdings, Inc. NYSE: ENR

Ligand Pharmaceuticals Inc. Nasdaq: LGND

Medicines Co. Nasdaq: MDCO

Sunesis Pharmaceuticals Inc. Nasdaq: SNSS

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