Medicines prices convertibles; outstanding issues come in; short-duration better bid

By Abigail W. Adams

Portland, Me., Dec. 14 – The first new convertible notes deal of the month hit the secondary market on Friday.

Medicines Co. priced $150 million of five-year convertible notes after the market close on Thursday. While the notes were below par on an outright basis, they were expanded dollar-neutral.

With Medicines’ new convertibles deal in the market, the biotech firm’s outstanding convertible notes contracted.

Meanwhile, trading volume remained light outside of the new paper as equities closed a volatile week by plummeting. The Dow Jones industrial average closed Friday down 496 points.

While volatility has historically boosted the secondary space, it was softer as a result, which was attributed to widening credit spreads.

Short-duration paper was seen better bid on Friday with notes with 2019 maturities in focus, a market source said.

Akamai Technologies Inc.’s 0% convertible notes due Feb. 15, 2019 and Twitter Inc.’s 0.25% convertible notes due Sept. 15, 2019 were among the soon-to-mature notes that have been active throughout the past week.

Akamai’s 0.125% convertible notes due 2025 also saw some activity on Friday with the notes weaker dollar-neutral.

Splunk Inc.’s two tranches of convertible notes were active with the notes again dropping below par as stock came in. However, the notes were largely unchanged on a dollar-neutral basis, a market source said.

Medicines expands

Medicines’ priced $150 million of five-year convertible notes at par with a coupon of 3.5% and an initial conversion premium of 27.5% after the market close on Thursday.

Pricing came at the cheap end of talk for a coupon of 3% to 3.5% and at the midpoint of talk for an initial conversion premium of 25% to 30%, according to a market source.

While not trading early in the session, the new 3.5% notes dominated trading in the secondary space with more than $40 million on the tape by the late afternoon.

The notes were trading largely below par with stock off throughout the session.

They were seen trading in a range between 99 and par on an outright basis and were expanded 0.75 point to 1 point dollar-neutral, sources said.

While the notes dominated activity on Friday, some sources expected to see more trading of the notes with Medicines being the first to price a deal in December.

However, with Sarissa Capital Management LP, an affiliate of board chairman Alexander J. Denner, buying $20 million of the notes, the deal was small, a market source said.

Medicines’ outstanding convertible notes were down on an outright and dollar-neutral basis after the pricing of the new deal on Friday.

The 2.75% convertible notes due 2023 dropped about 2 points outright to 77. The notes were in about 0.5 point on swap, a market source said.

The company’s 2.5% convertible notes due 2022 traded down about 3 points outright to 87. The notes were contracted about 0.75 point dollar-neutral.

Medicines stock closed Friday at $19.06, a decrease of 3.54%.

Sources were surprised to see a new convertible notes offering from Medicines given the levels of the outstanding convertible notes, but the consensus was the company needed the money.

“The problem with them is timing,” a market source said.

The 2.5% notes, which have $400 million outstanding, are coming due in 2022 when the first big news is expected for Inclisiran, a cholesterol medication, the source said.

Proceeds from the new convertible notes offering will be used to support the development of Inclisiran.

With a maturity date coinciding with Inclisiran’s study completion date, the name is “going to get a little funky,” the source said.

Short-dated

Short-dated convertible notes remained in focus on Friday, as has been the case for much of the week. Paper maturing in 2019 was seen better bid, a market source said.

Twitter’s 0.25% senior notes due Sept. 15, 2019 were among the short-dated paper in focus. The 0.25% notes were seen trading around 97.125 with a yield to maturity of 4.228%.

Akamai’s 0% convertible notes due Feb. 15, 2019 were also moving over the past week. The notes were trading between 99.25 and 99.5, according to Trace data.

Akamai weakens

Akamai’s 0.125% convertible notes due 2025 also saw some activity on Friday as the tech company’s 0% convertible notes were eyed.

The 0.125% notes traded just north of 94 on Friday. Akamai stock closed Friday at $65.10, a decrease of 3.2%.

They have grown weaker dollar-neutral with the notes down about 0.25 point over the past week, a market source said.

Splunk holds

Splunk’s two tranches of convertible notes sank back below par with stock off during Friday’s session. However, the notes were largely moving in line dollar-neutral, a market source said.

Splunk’s 0.5% convertible notes due 2023 dropped as low as 98.25 on an outright basis.

The 0.5% notes were among the most actively traded issues of the day.

However, much of the activity occurred prior to the opening bell and may have been driven by overseas accounts, a source said.

While volume was lighter, Splunk’s 1.125% convertible notes due 2025 also dropped down to 98.5 on Friday.

Splunk stock closed Friday at $105.26, a decrease of 2.32%.

The notes broke par for the first time since their initial days in the market on Wednesday.

Mentioned in this article:

Akamai Technologies Inc. Nasdaq: AKAM

Medicines Co. Nasdaq: MDCO

Splunk Inc. Nasdaq: SPLK

Twitter Inc. NYSE: TWTR

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