MannKind quiet in the gray, older MannKind 'marginally better'; Rubbermaid trades actively

By Rebecca Melvin

New York, Aug. 17 - The planned MannKind Corp. convertible issue was quiet in the gray market Tuesday after the Valencia, Calif.-based biopharmaceutical company launched an offering of $100 million of five-year notes after the close of markets Monday.

MannKind's existing 3.75% convertibles due December 2013 reacted initially by pushing up as much as 5 points, but they settled back quickly and were described as "marginally better," trading around 68, which was up about 3 or 4 points.

There was "no gray whatsoever probably because it's a private Rule 144A deal and only $100 million in size," a New York-based sellside trader said of the new MannKind offering.

Meanwhile, the "other issue is only marginally better since the funds are apparently interim financing while awaiting approval of their drug."

Elsewhere, it was "another pretty quiet day," a New York-based sellside desk analyst said.

The market's other main focus was the Newell Rubbermaid Inc. convertibles, which traded actively at steady pricing after the company announced the terms of its previously announced "flushout" of the 5.5% notes.

The Newell notes accounted for 22.5% of total market volume by late afternoon, according to Trace data, sources said.

Other names mentioned in trade included Molina Healthcare Inc., which traded at 95.625 versus a share price of $26.90, and were seen in line in the context of previous trades.

Hologic Inc. gained about 0.5 point on a dollar-neutral basis trading at 91 versus a share price of $15.00, which compared to 90.5 versus the same share price last Thursday.

In the equity markets, stocks rallied, snapping a five-day losing streak but closing off their highs of the day. The Dow Jones Industrial Average gained 103.84 points, or 1%, to 10.405.85; the S&P 500 stock index added 13.16 points, or 1.2%, to 1,092.54; and the Nasdaq Stock Market moved up 25.57 points, or 1.3%, to 2,209.44.

MannKind to price

The planned MannKind deal expected to price Wednesday after the close was quiet in the gray market Tuesday, sources said, citing the private Rule 144A aspect of the deal, which is coming concurrently with a stock borrow facility, as reasons that it would be illiquid.

The company is going to lend out 8 million shares, which wasn't seen as a large enough pool of stock to cover the delta hedge that the deal would require, and that stock borrow will be dominated by the underwriter, Bank of America Merrill Lynch, which is the bookrunner for the deal.

MannKind has agreed to loan 8 million common shares to Bank of America Merrill Lynch for a nominal fee to facilitate investor hedging. That would cover less than a 60% delta, according to one sellsider.

"The mid-point theoretical delta is 83...assuming guys would want to be 85%. The only dealer able to trade the deal will be the underwriter, which makes them very illiquid," a New York-based sellsider said.

"Nobody is saying a word," another sellsider said, regarding the deal.

The risk involved in the funds surrounding a small biotechnology company facing regulatory approvals for its proposed therapeutics was behind the required heavier delta. Proceeds of the deal are going to financing the diabetes and cancer-oriented company's clinical trials and other research and development.

The older MannKind 3.75% convertibles due December 2013 looked to be bid around 67 after having traded as high as 69 to 69.25, compared to trades in the 64.5 bid, 65 offered context on Aug. 11.

That's "not a good sign for the new issue," a sellsider said.

"They are probably going to try and place it with five to 10 investors. The borrow facility makes it tough for other dealers to trade and for holders to gamma trade position. No one likes these structures; the company has been bad at managing investor expectations' and the stock story is losing steam," the sellsider said.

Mannkind's planned $100 million of five-year convertible notes were talked to yield 5.25% to 5.75% with an initial conversion premium of 20% to 25%, according to market sources.

Rubbermaid active

Newell Rubbermaid's 5.5% convertible due 2014 traded at about 200, which was little changed on the day.

By mid-afternoon, the Newell 5.5% convertibles accounted for $102 million of traded bonds out of total volume of $454 million, according to Trace data, a sellsider said.

Shares of Newell Rubbermaid shed 17 cents, or 1.1%, to settle at $15.88, in active trade.

The terms of the exchange offer for the $345 million of convertibles is approximately conversion plus 16 points. For each $1,000 principal amount of convertible notes tendered, the holder will receive: 116.1980 shares of common stock (the conversion rate currently in effect for the convertible notes), a cash payment of $160.00, and accrued and unpaid interest from Sept. 15 to settlement.

"People are either selling to lock in the profit or buying to get the short-term gain for the exchange as they are buying at a discount," a New York-based sellsider said.

"Some already made their profit, and it's on to the next name," the sellsider said.

Johnson Controls Inc. was the first among a group of about half a dozen issues that priced with favorable terms and then shares ran up. About a year ago, that company conducted a similar exchange, which opened speculation that others like Alcoa Inc., Ingersoll-Rand plc, Wyndham Worldwide Corp. and Newell Rubbermaid would follow suit.

"But nothing happened for a year. So now you know they will take a look at the notion that the early issues will be next," the sellsider said.

The transaction is part of what the company is calling its Capital Structure Optimization Plan announced Aug. 2.

The offer is scheduled to expire Sept. 14.

Mentioned in this article:

Hologic Inc. Nasdaq: HOLX

MannKind Corp. Nasdaq: MNKD

Molina Healthcare Inc. NYSE: MOH

Newell Rubbermaid Inc. NYSE: NWL

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