Downsized Endologix trades up on debut; Kinder Morgan trades better; Integrated Device Technology on tap

By Rebecca Melvin

New York, Oct. 28 – Endologix Inc.’s newly priced 3.25% convertibles traded up on their debut in the secondary market on Wednesday after the Irvine, Calif.-based developer and maker of aortic disorder treatments priced a downsized $110 million of the five-year senior notes at the cheap end of talked terms.

The new Endologix convertibles rose in trading to 105.25, a syndicate source said.

The new bonds expanded multiple points on a dollar-neutral basis initially but the stock rose through the morning session, so that some of that swap gain was wrung out of pricing, the source said.

Endologix’ shares had risen to $9.40, which was up 6%, when the stock dropped sharply but briefly with the broader markets to the flat line. After that, they climbed back up to retake $9.08, which was up 30 cents, or 3.5% on the day.

Equities, in general, dropped sharply after the Federal Reserve Open Market Committee finished up its two-day policy meeting, during which it decided to leave the fed funds rate unchanged but took aim at a possible rate hike at its December meeting.

Reaffirming its current 0% to 0.25% target range as appropriate, it said that at its next meeting, the Committee will assess progress toward its twin objectives of maximum employment and 2% inflation.

For the day, the S&P 500 stock index ended up 1.2%, which was close to the level at which it was trading before the Fed announcement torpedoed equity markets, sending many names into negative territory, before they climbed back up quickly to near earlier levels.

Perhaps the day’s busiest issue in convertibles was Kinder Morgan, Inc.’s 9.75% mandatory convertible, which was better on Wednesday compared to Tuesday, when the $1.57 billion deal debuted in the secondary market.

Kinder Morgan’s mandatory was seen at about $49, after it dropped to about $48 on Tuesday. Kinder Morgan shares were up 46 cents, or 1.7%, at $27.74. The deal had priced at $49.

Twitter Inc. shares dropped in the early going on Wednesday after the San Francisco-based social media company’s latest quarterly report showed disappointing user growth and a lackluster outlook for current-quarter revenue. But the equity came back for only a 1.5% decline and the Twitter convertible bonds traded rather mildly but more or less “in line” with the underlying shares, a New York-based trader said.

In the primary market, Integrated Device Technology Inc. launched an offering of up to $373.75 million of seven-year convertible bonds that were talked to yield 0.625% to 1.125% with an initial conversion premium of 35% to 40%. Pricing was seen occurring after the market close on Thursday.

Downsized Endologix adds

Endologix’s newly priced 3.25% convertibles due 2020 traded up to 105.25 on Wednesday.

Shares of the Irvine. Calif.-based medical device maker moved up as well, ending the session up 31 cents, or 3.5%, at $9.08.

On a hedged basis, there was about a 7 point expansion versus the closing share price on Tuesday at $8.77. That gain was pared as shares climbed but the position was still up multiple points, a syndicate source said.

“The deal went well. It was downsized but traded 105.25 with the stock much lower at around $8.90,” the source said.

The bond was cut to $110 million from $150 million after Endologix shares plunged 36% on the heels of the deal launch on Tuesday.

Endologix said in a press release on Wednesday that the deal size was reduced due to market conditions and the price of the company’s stock at the time of pricing.

As for the convertibles’ performance on Wednesday, some of that was related to how oversold the equity was on Tuesday, a New York-based trader said.

The stock sold off on a combination of two dilutive events, the convertible deal and the acquisition announced by the company. Endologix is buying TriVascular Technologies Inc. for about $211 million in cash and stock.

On Wednesday outright demand helped boost the convertible.

The bond wasn’t trading overly actively given the small deal size. About $15 million had changed hands as of late morning, the source said.

Pricing of the registered deal came at the cheap end of talk, which was for a 2.75% to 3.25% coupon and 27.5% to 32.5% premium.

Kinder Morgan improves

Kinder Morgan’s mandatory convertible was quoted last at around $49.00, which was up from $48.00 on Tuesday and back to the issue price.

“The theme really is how KMI rocked the market,” a New York-based trader said on Wednesday, regarding Tuesday and Wednesday.

It priced at $49 but traded down to $48 amid allocations that were generous, the trader said. “There was a lot of pain yesterday.”

“Just about everyone is involved in KMI,” a New York-based convertibles trader said on Wednesday. And it accounted for a good chunk of market action on Tuesday.

Kinder Morgan priced the registered deal at the fixed dividend that was talked during marketing and at the cheap end of 17.5% to 22.5% premium talk and at the low end of the $49 or $50 talked for the price.

Houston-based Kinder Morgan, an energy pipeline company, also reported earnings that missed estimates.

Twitter in line

Twitter’s 0.25% convertibles due 2019 traded little changed between 88.4 and 89, according to Trace data. That was the same range that they have been in for several sessions. The underlying shares ended at about $30.90, which was down 1.5%.

The Twitter 1% convertibles due 2021 were trading a tick lower than their sister issue at about 89.

The shares were down 47 cents, or 1.5%. Earlier in the session the shares had dropped as much as 14%.

The convertibles moved “straight down with the shares,” a trader said.

The shares dropped after the company reported third-quarter results that showed slowing user growth and fourth-quarter revenue and monthly average user figures that fell short of estimates.

For the just-completed quarter, the adjusted loss was 15 cents a share, which was better than expected and revenue rose to $569.2 million, which was up more than 50% on the year-earlier period and surpassed estimates.

Twitter's monthly active users (MAU) increased by a 4 million to 320 million.

Mentioned in this article:

Endologix Inc. Nasdaq: ELGX

Intergrated Device Technology Inc. Nasdaq: IDTI

Kinder Morgan Inc. NYSE: KMI

Twitter Inc. Nasdaq: TWTR

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