Cerevel convertible notes skyrocket on debut; GSK, Illumina unchanged in heavy volume

By Abigail W. Adams

Portland, Me., Aug. 12 – The last new convertible bonds in what has been an active week for new deal activity made their secondary market debut on Friday.

Cerevel Therapeutics Holdings Inc. priced an upsized $300 million offering of five-year convertible notes after the market close on Thursday.

The deal played to strong demand during bookbuilding with the notes pricing at the rich end of tightened price talk and skyrocketed in secondary market activity.

Outside of the new paper, it was a relatively quiet session in the convertibles secondary space as equity markets capped another week of strong gains.

The Dow Jones industrial average closed Friday up 424 points, or 1.27%, the S&P 500 index closed up 1.73%, the Nasdaq Composite index closed up 2.09% and the Russell 2000 index closed up 1.93%.

GSK Finance No. 3 plc (GlaxoSmithKline plc)’s soon-to-mature 0% exchangeable notes due June 22, 2023 (A2/A) tied to Theravance Biopharma Inc.’s stock were major volume movers following news GSK is facing litigation over the heartburn drug Zantac.

However, the notes were largely unchanged in the trading activity.

Illumina Inc.’s soon-to-mature 0% convertible notes due Aug. 18, 2023 (BBB) also saw heavy volume as stock took a beating post-earnings.

However, the notes, which trade for their yield, were also largely unchanged.

Cerevel soars

Cerevel priced an upsized $300 million offering of five-year convertible notes after the market close on Thursday at par to yield 2.5% with an initial conversion premium of 32.5%.

Pricing came at the rich end of tightened talk for a coupon of 2.5% to 2.75% and on top of talk for an initial conversion premium of 32.5%, according to a market source.

Initial talk was for a coupon of 2.75% to 3.25% and an initial conversion premium of 27.5% to 32.5%.

Concurrently, Cerevel priced a secondary offering of 7.25 million shares at a public offering price of $35 per share.

The deal played to heavy demand during bookbuilding with allocations tight, a source said.

It was wall-crossed with about seven accounts taking down the bulk of the offering.

The concurrent equity offering was heard to be 2x to 3x oversubscribed.

Cerevel’s 2.5% convertible notes skyrocketed on debut.

The notes traded as high as 106.5 on an outright basis out of the gate.

“Talk about up, up and away,” a source said.

However, the notes gave back some of their outright gains as stock turned negative as the session progressed.

The notes expanded 5 to 6 points dollar-neutral early in the session, depending on whether the hedge was against Thursday’s close or the concurrent offering, a source said.

They were seen up 4 points dollar-neutral heading into the close.

Cerevel’s stock traded to a high of $36.62 and a low of $33.63 before closing the day at $34.86, a decrease of 2.16%.

GSK in focus

GSK’s 0% exchangeable notes due June 22, 2023 tied to Theravance’s stock saw heavy volume on Friday although with little movement in price.

The notes were wrapped around 99.625 on Friday, according to a market source.

There was $26 million in reported volume.

Theravance’s stock traded to a low of $9.42 and a high of $9.69 before closing the day at $9.61, an increase of 1.59%.

The notes were active following news that GSK was facing litigation alleging the heartburn drug Zantac caused cancer.

While the notes are tied to Theravance’s stock, which was not affected by the news, they are backed by GSK’s credit.

There is concern that the litigation may affect GSK’s credit and cause a downgrade.

The 0% exchangeable notes carry an A2/A credit rating.

The notes have traded on a 99-handle since late last week after spending much of June and July on a 96-handle.

Illumina’s earnings

Illumina’s soon-to-mature 0% convertible notes due Aug. 18, 2023 (BBB) saw heavy volume as stock cracked following an earnings miss.

However, the 0% notes saw little movement in price as they continued to trade for an attractive yield.

The 0% notes were seen at 96.25 on Friday.

Some may have put the 0% notes on a light hedge.

However, the majority of trades in the issue have been yield plays with the notes currently offering a yield of about 5%, a source said.

While not equity sensitive, Illumina’s stock was under pressure on Friday and closed the day at $208.32, a decrease of 8.4%.

Stock fell following an earnings miss with the company reporting earnings per share of 57 cents versus analyst expectations for earnings of 60 cents.

Revenue was $1.16 billion versus analyst expectations for revenue of $1.22 billion.

Mentioned in this article:

Cerevel Therapeutics Holdings Inc. Nasdaq: CERE

Illumina Inc. Nasdaq: ILMN

Theravance Biopharma Inc. Nasdaq: TBPH

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