Zogenix convertibles below par, up on swap; Omnicell improves; high-grade names eyed

By Abigail W. Adams

Portland, Me., Sept. 24 – The convertibles secondary market saw new paper enter the space on Thursday.

Zogenix Inc. priced $200 million of seven-year convertible notes after the market close on Wednesday.

While the notes dropped below par on an outright basis, they were expanding dollar-neutral on their secondary market debut.

However, trading activity in the name was relatively light with investment-grade names in focus on a volatile day for equities, sources said.

Equity benchmarks opened the session in the red but gained strength in the mid-afternoon only to give back much of those gains and close the day nominally improved.

The volatility in equities was beginning to take a toll on the convertibles secondary space.

There were more offers in the market and trading into the bid than there has been in previous weeks, a source said.

However, trading volume continued to be dominated by the usual suspects.

Illumina Inc.’s convertible notes once again dominated the tape as stock improved during Thursday’s session.

Western Digital Corp.’s 1.5% convertible notes due 2024 were active and trading off following news the company would reorganize into two separate units.

Meanwhile, Omnicell Inc.’s recently priced 0.25% convertible notes due 2025 recouped some of its losses after ending the previous session on weak footing.

Zogenix expands

Zogenix priced $200 million seven-year convertible notes at the cheap end of talk with a coupon of 2.75% and an initial conversion premium of 30%.

Price talk was for a coupon of 2.25% to 2.75% and an initial conversion premium of 30% to 35%, according to a market source.

The new paper struggled on an outright basis. However, it was improving on hedge.

The notes traded as low as 98.25 soon after the opening bell.

The 2.75% notes were marked at 99 bid, 99.5 offered versus a stock price of $18.00 in the late afternoon.

They were expanded 1.5 points dollar-neutral, a source said.

The majority of trades were on swap.

After dropping more than 17% on Wednesday, Zogenix’s stock continued to trade off on Thursday.

Stock traded to a low of $17.20 and a high of $18.38 before closing the day at $17.76, a decrease of 4.93%.

The drop in stock was predictable. “A lot of biotechs get annihilated,” a source said.

Biotech companies are favored by hedge funds, which put pressure on the stock, the source said.

The offering was a wall-crossed deal with a limited audience, sources previously said.

However, given the drop in stock, there were not many fundamental investors involved in the deal, another source said.

More Illumina

Illumina’s convertible notes continued to dominate trading activity on Thursday, as they have for much of the past week.

The 0.5% convertible notes due 2021 were changing hands at 119.375 early Thursday.

They rose to 120.25 by the late afternoon.

The 0% convertible notes due 2023 continued to trade around 104 early in the session and rose to 104.375 in the late afternoon.

The notes were moving largely in line dollar-neutral. However, the 0% convertible notes due 2023 may have been slightly weaker, a source said.

Illumina’s stock closed the day strong after a volatile session for equities.

Stock traded to a low of $267.10 and a high of $287.48 before closing the day at $286.31, an increase of 4.88%.

Illumina’s convertible notes have been major volume movers since news broke about its intention to buy Grail Inc. last week.

Western Digital active

Western Digital’s 1.5% convertible notes due 2024 were active and trading off following news the company plans to reorganize and may eventually split into two separate units.

The 1.5% convertible notes traded down to a 95 handle after the news broke on Wednesday and continued to trade around that level on Thursday.

Holders were “selling first and asking questions later” about the planned reorganization, a source said.

Western Digital announced on Wednesday that it was reorganizing its business with the goal to split its flash and hard disk drive businesses.

If the company does split, it is unclear which unit would assume the company’s debt, a source said.

While Western Digital stock was posting gains on the news, the notes are not equity sensitive.

Omnicell improves

Omnicell’s 0.25% convertible notes due 2025 were on the rise their second day in the secondary space after closing out the previous session on weak footing.

The 0.25% convertible notes traded up to 101 on an outright basis.

They expanded 0.25 point dollar-neutral, a source said.

Omnicell’s stock traded to a low of $69.16 and a high of $71.50 before closing the day at $70.71, an increase of 0.78%.

The 0.25% notes expanded as much as 2 points dollar-neutral in intraday activity on Wednesday.

However, they gave back much of those gains heading into Wednesday’s close amid the sell-off in the broader market.

The notes traded down to par and ended Wednesday’s session with a 0.5 point expansion.

As of Thursday afternoon, the notes were up 0.75 point dollar-neutral since pricing.

Mentioned in this article:

Illumina Inc. Nasdaq: ILMN

Omnicell Inc. Nasdaq: OMCL

Western Digital Corp. Nasdaq: WDC

Zogenix Inc. Nasdaq: ZGNX

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