New, upsized Novavax gains on swap; energy unchanged despite higher oil, share prices

By Rebecca Melvin

New York, Jan. 26 – Novavax Inc.’s newly priced 3.75% convertibles due 2023 gained in active trade on Tuesday after the Rockville, Md.-based biotechnology company brought an upsized $300 million of the senior notes beyond the cheap end of talk.

The Novavax convertibles were up 2.5 points on swap at 102.5 last versus a share price of $5.56.

The Novavax deal was initially talked at $200 million in size, with a midpoint of price talk for a 3% coupon and a 30% initial conversion premium.

The deal action indicated that investors still hold the pricing power over issuers in this market. But it was difficult to glean much else about the market conditions from the first new deal this year.

“Will we have to wait five more months” for another deal? a New York-based trader complained, since the primary market has been non-existent this year to this point.

Elsewhere, higher oil prices buoyed energy stocks and the broader equity markets, but they did little for convertibles.

“It’s more of an equity move. We’re not seeing it translate into convertibles or high yield. Whether it’s short covering on the equity side or something else, these 15%, 17%, 20% moves are not affecting credit right now; credit is unchanged,” a New York-based trader said.

See-saw action in energy markets continued on Tuesday with higher crude oil causing some energy shares to spike following a drop on Monday.

Cobalt International Energy Inc.’s convertible bonds were mostly quiet, but the Cobalt 3.125% convertibles did trade Tuesday at 39.5. That was up about a point from Monday but didn’t keep pace with a spike of 18% in the shares of the Houston-based oil-focused exploration and production company that underlie the bonds. The shares were up 54 cents to $3.60.

In addition to better oil prices – West Texas Intermediate crude oil for March delivery gained 90 cents, or 3%, to $31.24 per barrel on Tuesday – Cobalt shares were upgraded by Tudor Pickering to “buy” from “accumulate.”

Chesapeake Energy Corp.’s convertibles were also little changed – although indicated higher – as shares of the Oklahoma City-based natural gas producer bounced 8% on the heels of a 16% drop on Monday – its worst one-day drop in more than a year after a two-notch debt downgrade by Standard & Poor’s to CCC+ from B.

Away from natural gas and oil, EnerNOC Inc.’s 2.25% convertibles changed hands at 68 and 69, which was up from 55 to 58 last week, while EnerNOC shares fell $1.05, or 15% to $6.00 on Tuesday after jumping $2.89, or about 50% on Monday.

The jump on Monday was sparked by a Supreme Court ruling that went in favor of smart grid companies like the Boston-based energy intelligence software company. The ruling in the Federal Energy Regulatory Commission v. Electric Power Supply Association case went in favor of demand response plans that allow retail customers to be paid for conserving electricity.

In the broader markets, the Nasdaq composite stock index gained 49.18 points, or 1.1%, to 4,567.67, the S&P 500 stock index rose 26.55 points, or 1.4%, to 1,903.63 and the Dow Jones industrial average gained 282.01 points, or 2%, to 16,167.23.

New Novavax adds on swap

Novavax’s 3.75% convertibles due 2023 gained 2.5 points on swap at 102.5 last versus a share price of $5.56, market sources said.

Novavax shares gained 8.5 cents, or 1.5%, to $5.645.

Early in the session the shares were in negative territory and the new bonds were at 101.5 bid, 102 offered versus an underlying share price of $5.56, a New York-based trader said.

A second trader quoted the market at 102 bid, 102.75 offered versus a share price of $5.56.

Novavax shares fell $1.06, or 16%, to $5.56 on Monday after the company launched a $200 million offering of seven-year convertibles. The deal was upsized by 50% to $300 million during marketing.

The initial conversion premium is 22.5%. That represents pricing that came through the cheap end of talk, which was for a 3% coupon and a 30% initial conversion premium at the midpoint.

“It probably looks like it is a kind of name that is a negative credit given the space it’s in,” a market source said, but the pricing action followed in line with the last three deals of the year in December, which also looked to have favored investors.

There is strong investor demand, but given the current sentiment in the market, the investors still wield pricing power rather than the issuers, he said.

At this point “volatility is the driver, and it’s more sentiment than anything else. The market is crazy,” the source said.

The Rule 144A deal has a $30 million greenshoe and was sold via joint bookrunning managers Citigroup Global Markets Inc. and J.P. Morgan Securities LLC.

J. Wood Capital Advisors is financial adviser to Novavax.

The notes are non-callable and have takeover protection.

Proceeds from the offering are earmarked for clinical-stage vaccine candidates, including phase 3 clinical trials of its RSV F Vaccine in older adults and pregnant women, as well as its other clinical and preclinical research programs, and for general corporate purposes.

In connection with the pricing of the notes, Novavax entered into privately negotiated capped-call transactions with one or more option counterparties. The cap price on the capped call is $9.73, which boosts the initial conversion premium to 75% from the issuer’s perspective.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Cobalt International Energy Inc. NYSE: CIE

EnerNOC Inc. Nasdaq: ENOC

Novavax Inc. Nasdaq: NVAX

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