Planned Ironwood looks cheap; Avid pricing also looks fairly cheap; Micron notes improve

By Rebecca Melvin

New York, June 9 – Convertibles players were sizing up two new deals in the market on Tuesday that were set to price after the market close.

Ironwood Pharmaceuticals Inc.’s planned $300 million offering of seven-year convertible senior notes looked like it was priced appropriately, one trader said, and should do well.

Shares of the Cambridge, Mass.-based pharmaceutical company slumped 11% on the heels of the new convertibles launch, prompting the trader to comment, “It doesn’t look like a good outright book.”

Also in the market, Avid Technology, a Burlington, Mass.-based digital media company, planned to price $115 million of five-year convertibles. That deal modeled with a tighter credit spread and lower vol. and was seen less cheap. Avid shares came off 9%.

Back in established issues, there were no discernible trends. Existing paper in the sectors represented by the new deals didn’t seem to be under any pressure, a New York-based trader said.

Newmont Mining Corp.’s 1.625% convertibles were trading actively in the early going following news that the Denver-based mining company has agreed to purchase a Colorado mine from AngloGold Ashanti Ltd. for $820 million.

Newmont is issuing 29 million shares of common stock in a public offering to help pay for the mine.

Newmont’s convertibles changed hands down 0.8 point at 103.5, according to Trace data, with the Newmont shares down about 1.5%. But shares ended down by more than 5%.

Micron Technology Inc.’s 3% convertible senior notes due 2043 were trading a little better on swap as shares of the Boise, Idaho-based chipmaker traded down 2.8%.

The Micron convertibles changed hands at about 105 with the underlying shares at $25.19.

The convertibles of TTM Technologies Inc., were also noted as being a little better on swap.

Synergy Pharmaceuticals Inc. was mentioned as a good comparable to Ironwood. The New York-based biopharmaceutical company priced $200 million of 7.5% convertibles due 2019 last May. The Synergy notes were quoted Tuesday afternoon at 165 bid, 166 offered with the underlying shares of the company at about $5.00.

Ironwood looks cheap

Using a credit spread of 650 basis points over Libor and a 40% vol., the new Ironwood deal looked to be worth fair value at 102.5 at the midpoint of talk, a trader said.

Price talk for the deal was 2.5% to 3% for the coupon and 30% to 35% for the premium.

But the trader noted that the credit spread was contingent on questions such as whether and how much of the company’s secured debt would be paid down with proceeds of the new deal.

Ironwood has $175 million of senior secured straight debt outstanding, with an 11% coupon. If that debt was being repaid with proceeds of the new deal, the credit spread would be lower, the trader said.

Ironwood didn’t specify which debt or how much would be repaid with proceeds.

Proceeds from the notes will be used to fund general corporate purposes, which may include repayment or redemption of all or a portion of its outstanding debt, the acquisition of or investment in strategic assets, and to pay the cost of the call spread.

Ironwood has a market capitalization of almost $2 billion.

The company may wait until January 2016 when the call price steps down to 103.5 from 105.5 to repay debt, a Connecticut-based trader pointed out.

A second trader valued the Ironwood deal with a 700 bps credit spread and 40% vol. and got the deal worth 101.75 at the midpoint of talked terms.

Ironwood is a Cambridge, Mass.-based pharmaceutical company focused on treatments for gastrointestinal illnesses. Its Rule 144A deal has an over-allotment option for $45 million additional notes and was being sold via joint bookrunners J.P. Morgan Securities LLC and Credit Suisse Securities (USA) LLC.

The notes are non-callable, with no puts, and have takeover and dividend protection. The deal is coming with a call spread.

Avid looks slightly cheap

Using a credit spread of 500 bps over Libor and a 37% vol., the new Avid convertibles modeled 101.66 fair value at the midpoint of talked terms.

Avid, the Burlington, Mass.-based digital media company, plans to price $115 million of five-year convertibles at a 1.75% to 2.25% yield and a 32.5% to 37.5% premium.

The Rule 144A deal has a $15 million greenshoe and was being sold via Jefferies & Co. as bookrunner, with Houlihan Lokey as co-manager.

The notes are non-callable with no puts and have takeover and dividend protection.

In connection with the pricing of the notes, Avid plans to enter into convertible note hedge and warrant transactions, or a capped call.

Proceeds from the notes will be used to fund its previously announced acquisition of Orad Hi-Tec Systems Ltd. and to pay the cost of the capped call.

Avid also plans to use proceeds to pay for potential share repurchases, to repay its current credit facility, for working capital and for general corporate purposes.

Prior to the deal pricing, the Avid Technology shares fell $1.57, or 8.8%, to $16.25.

Mentioned in this article:

Avid Technology Inc. Nasdaq: AVID

Ironwood Pharmaceuticals Inc. Nasdaq: IRWD

Micron Technology Inc. NYSE: MU

Newmont Mining Corp. NYSE: NEM

Synergy Pharmaceuticals Inc. Nasdaq: SGYP

TTM Technologies Inc. Nasdaq: TTMI

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