New WellPoint up on debut; Ares Capital on tap; existing Ares paper quiet; NuVasive drops

By Rebecca Melvin

New York, Oct. 3 - WellPoint Inc.'s newly priced 2.75% convertibles due 2042 traded up in active trade on their debut in the secondary market on Wednesday after pricing at the middle of coupon price talk and at the wide end of premium talk late Tuesday.

The large, $1.35 billion WellPoint deal closed around 101.5 bid, 102 offered and had high marks around 102.25, moving with the underlying shares, which bounced around somewhat and ended fractionally lower at $60.11.

Ares Capital Corp. launched a deal early Wednesday for pricing after the market close. The New York-based private equity firm focused on mid-sized businesses planned to price $200 million of convertible senior notes due Jan. 15, 2018 - a deal that will become Ares' fourth outstanding convertible issue.

One source noted a below par gray market bid with a 99 handle. But a second source said he thought the new deal, talked at a 4.25% to 4.75% coupon and a 17.5% to 22.5% premium, was cheap.

Ares' existing convertibles were not active, although there was an offer in the newest issue, a 4.875% convertible due 2017, at 103 versus an underlying share price of $17.20, according to a Connecticut-based analyst.

Otherwise the session was dominated by the new WellPoint deal and several large, liquid names like Gilead Sciences Inc. and Intel Inc.

The Gilead C series convertibles were particularly active, but pricing was not moving in one direction or the other, a New York-based trader said.

"A lot of that is just a way to pay back the underwriters in the easy, liquid names," the trader said of the investment-grade names trading like Gilead.

Affiliated Managers Group Inc. was in focus after word that the Prides Crossing, Mass.-based asset management company was talking a new issue of 10-year straight notes at around 5.25%.

The new Affiliated $25-par straight notes were said to be $24.70 bid in the gray market around midday.

The Affiliated 3.95% convertible notes due 2038 were seen up 0.25 point at 111 versus the closing share price of $122.38.

Shares were up 40 cents, and the convertible paper trades on a 50% delta.

After the market close, NuVasive Inc.'s 2.75% convertibles due 2017 were being offered more than five points below where they closed along with a steep drop in after-hours trade of the underlying shares following a revenue warning from the San Diego-based medical device maker.

WellPoint does well on debut

WellPoint's newly priced 2.75% convertibles were offered at 101.875 versus an underlying share price of $60.46 in the early going. Shares opened slightly higher, and the market was called 101.5 to 102 with high markets at 102.25, with the underlying shares bumping around the unchanged level.

The close in the new paper was called 101.5 bid, 102 offered.

Shares of the Indianapolis-based health benefits company closed down 35 cents, or 0.6%, at $60.11 after extremely heavy volume.

"It was bouncing around and very active; I think everybody traded them," a New York-based trader said.

The paper did well and was a little higher than the indicated pricing in the gray market, which was 101 to 101.5.

WellPoint priced $1.35 billion of the new debentures after the market close Tuesday to yield 2.75% with an initial conversion premium of 25%.

The yield came in the middle of talk set at 2.5% to 3% and the conversion premium was at the wide end of the 20% to 25% range.

Insurance rating and information company A.M. Best Co. has assigned a debt rating of "bbb+" to the convertible debentures, but the rating has been placed under review with negative implications, which is consistent with the status of the existing ratings of WellPoint and its insurance subsidiaries. Although WellPoint's pro forma financial leverage is somewhat higher than similarly rated peers, A.M. Best leans favorably toward the financial flexibility provided by the convertibles.

Additionally, the issuance is consistent with A.M. Best's views with respect to WellPoint's capital structure incorporating the financing for the previously announced $5 billion acquisition of Amerigroup Corp.

The Americorp acquisition is expected to close by year-end subject to regulatory approvals.

The new Rule 144A debenture has a $150 million over-allotment option and was sold via joint bookrunners Credit Suisse Securities (USA) LLC, Bank of America Merrill Lynch and UBS Investment Bank.

The notes are non-callable for 10 years and then provisionally callable if the underlying shares are 150% of the conversion price. There are no puts.

The securities have net share settlement, and they have dividend and change-of-control protection.

About $400 million of proceeds are earmarked for stock repurchases concurrently with the debenture offering. The balance of proceeds will be used for general corporate purposes, including but not limited to additional share repurchases and repayment of short- and long-term debt.

Ares to price

Ares planned to price $200 million of convertible senior notes due Jan. 15, 2018 after the market close Wednesday that were talked to yield 4.25% to 4.75% with an initial conversion premium of 17.5% to 22.5%.

The Rule 144A has a $30 million over-allotment option and was being sold via joint bookrunners J.P. Morgan Securities LLC, Goldman Sachs & Co. and Deutsche Bank Securities Inc., as passive bookrunner.

Shares of the New York-based private equity firm closed down 29 cents, or 1.7%, at $16.91, trending lower in active afternoon trade.

Ares is a business development company, which raises money through equity and bond offerings and then uses those funds to lend to medium-sized private companies.

The company has a lot of other convertible debt outstanding, including a $575 issue priced in January 2011, a $230 million issue priced in March 2011 and a $162.5 million issue priced in March 2012.

Ares' youngest existing issue, 4.875% convertibles due 2017, were seen at 103 offered versus an underlying share price of $17.20 during the session, according to a Connecticut-based analyst.

The new deal will be non-callable with no puts. There is one-way dividend protection in the form of a conversion rate adjustment for dividends above $0.38, and there is change-of-control protection.

Proceeds will be used to repay or repurchase debt and for general corporate purposes, including investing in portfolio companies in accordance with its investment objective.

NuVasive sinks on warning

NuVasive's 2.75% convertibles were being offered sharply lower after the market close as shares of the San Diego-based medical device maker plunged in after-hours trade on a warning.

After the market close, the NuVasive 2.75% convertibles due 2017 were offered at 89.25 bid, 89.75 offered by one New York-based bank, which was down from 94.50 bid, 92.25 offered at the close.

"NUVA is blowing up," a New York-based trader said with NuVasive shares down more than 20% in after-hours trade. They had closed the day down 1.7%.

NuVasive, which focuses primarily on minimally disruptive surgical products for the spine, said that its third-quarter revenue will be less than expected due to high account churn and aggressive competition.

The company now expects third-quarter revenue of $147 million, which was below the company's previous guidance of revenue flat compared to $154.4 million in the second quarter.

"We experienced an unexpected sequential decline in the third quarter due to unusually high account churn related primarily to the growth of surgeon participation in physician-owned distributorships and to increasingly aggressive competitive tactics. As well, we heard from many surgeon customers of increased delays and denials from insurance payers. We believe our ability to take market share with innovative procedural solutions and services remains strong,"NuVasive chairman and chief executive Alex Lukianov said in a release.

NuVasive expects to announce full quarterly revenue and earnings and update guidance when the company releases earnings Oct. 29.

Mentioned in this article:

Affiliated Managers Group Inc. NYSE: AMG

Ares Capital Corp. Nasdaq: ARCC

Intel Inc. Nasdaq: INTC

Gilead Sciences Inc. Nasdaq: GILD

NuVasive Inc. Nasdaq: NUVA

WellPoint Inc. NYSE: WLP

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