PDL BioPharma up outright, flat on swap on debut; Rovi adds dollar neutral as stock surges

By Rebecca Melvin

New York, May 11 - PDL BioPharma Inc.'s newly priced 3.75% convertibles due 2015 traded actively on their debut in the secondary market Wednesday and ended higher outright by 1.625 points to 2.125 points, but basically flat on swap, after the Wilmington, N.C., pharmaceutical company priced $135 million of the four-year paper at the midpoint of talk Tuesday.

PDL's existing convertibles due 2012, which will be bought back with proceeds of the new deal, were essentially unchanged at 101 against a share price that was higher at the close by 3.5%.

Rovi Corp. was another actively traded name in the convertible market, and that paper surged outright by 15 or 16 points and added about 2 points on a dollar-neutral basis after the California based entertainment technology company's stock rocketed on raised guidance for 2011. The name was also upgraded to "buy" from "hold" by Maxim Group.

Molycorp Inc.'s 5.5% convertible mandatories (Symbol: MCP-PA) traded down along with the common stock after the Greenwood Village, Colo.-based rare earths mining company reported first-quarter earnings late Tuesday that missed estimates.

Back in the primary market, JinkoSolar Holding Co. Ltd. was expected to price after the market close $125 million of five-year convertible notes that were talked at a coupon of 3.75% to 4.25% and an initial conversion premium of 22.5% to 27.5%. The paper was quiet in the gray market ahead of pricing and was said to have a difficult borrow.

New PDL flat on swap on debut

PDL's newly priced 3.75% convertibles due 2015 traded at 100.5 versus an underlying share price of $6.20 during the session, and near the close they were quoted at 101.625 bid, 102.125 offered versus a share price of $6.45.

PDL's 2% convertibles due 2012 traded at 101 versus the $6.20 share price Wednesday, which compared to 101 versus a share price of $6.55 on Tuesday.

The PDL 2.875% convertibles weren't heard in trade but printed last at 107.5, according to Trace data.

"I thought they looked pretty cheap, but the old 2.875% looked pretty cheap as well, and the model monkeys probably used similar inputs on both," a New York-based sellside trader said.

Shares of the Incline Village, Nev.-based biopharmaceutical company gained toward the end of the session ending up 22 cents, or 3.5%, at $6.43 in active trade.

PDL priced $135 million of four-year convertible senior notes after the market close Tuesday via Bank of America Merrill Lynch as the bookrunner, with RBC Capital Markets LLC and JMP Securities as the co-managers.

There is a $20.25 million, or 15%, greenshoe.

The notes are non-callable for life with no puts. There is contingent conversion subject to a 130% price hurdle. They have net share settlement and dividend and takeover protection.

Proceeds of the convertible offering will be used to pay the cost of the note hedge transactions and to repurchase the company's $133.5 million outstanding of its 2% convertible senior notes due February 2012.

PDL engages in the management of antibody humanization patents and royalty assets, which consist of Queen et al. patents and license agreements with various biotechnology and pharmaceutical companies.

Rovi gains dollar neutral

Rovi's 2.625% convertibles due 2040 surged 15 or 16 points outright to 139 and had been quoted earlier at 140.5 with the stock around $52.50. Previously they were about 123.

Rovi shares rocketed up $8.80, or 18%, to $58.48 in heavy volume.

Outright players obviously did very well on this name today, and convert arb players were also able to capture a lot of delta if they were on the right hedge going into the news.

Most players would have been on a 70% delta on Tuesday, and if that was the case, then those players were probably up about 2 points, a New York-based sellside analyst said.

"It looks like guys going into day were probably up about 2 points," the analyst said.

Late Tuesday after Rovi reported earnings that included the guidance boost, the Rovi convertibles, which are about a $660 million issue, traded up to 137.

"We're going out 139, which is up 2 points dollar neutral," he said.

As the stock moved up during the course of the day, the paper became deeper in the money and the delta moved higher to about 80%.

If anyone started out with a really heavy delta, they probably didn't make anything, the analyst said.

The conversion price on the bonds is $47.36.

"Because the stock made such a massive move instantaneously, someone is capturing that," he said.

The Santa Clara, Calif.-based digital entertainment technology firm raised its full-year profit outlook $2.25 to $2.55 per share compared to a previous forecast of $2.20 to $2.50 a share. Analysts on average were expecting the company to post full-year earnings of $2.38 a share.

Rovi cited higher synergies from its $720 million purchase of Sonic Solutions, which owns the digital video player software DivX, in December.

The deal is expected to close in the first half and would add 5 to 10 cents per share to its adjusted earnings and generate more than $15 million in savings in 2011.

The company also cited problems related to Japan and potential reductions there. Rovi gets about one-third of its consumer electronics segment revenue from Japan, and fallout from the natural and man-made disasters there could limit revenue growth in the $10 million range as potential sales declines and amid supply shortages in that market.

That segment contributed about 57% of Rovi's first-quarter revenues, including guidance products and patents licensed to device manufacturers.

First-quarter net income was actually down at $17 million, or 15 cents a share, compared with $68.1 million, or 64 cents a share, in the year-earlier period.

But excluding items, the company earned 61 cents per share, which topped analysts' expectations for 51 cents in earnings.

Molycorp lower outright

Molycorp's newly priced 5.5% convertible mandatory preferreds fell $6.56, or 5.3%, to $115.94. Previously the preferreds were $122.50. That compared to Molycorp's common stock, which fell $3.81 or 5.7%, to $62.66.

Molycorp Inc., a producer of rare earth oxides used in wind turbines and hybrid vehicles, also reported results late Tuesday that fell short of expectations.

JinkoSolar to price

JinkoSolar's $125 million of five-year convertibles were seen pricing after the market close Wednesday and were talked at a coupon of 3.75% to 4.25% and an initial conversion premium of 22.5% to 27.5%, according to a market source.

JinkoSolar shares ended higher on the day by 36 cents, or 1.3%, to $27.55.

The underlying stock is tough to borrow. There is no borrow facility associated with the deal.

The Rule 144A offering has a $25 million greenshoe and is being sold via Credit Suisse Securities (USA) LLC as the bookrunner, with William Blair & Co. LLC as a co-manager.

The notes are non-callable, and there is no contingent conversion.

Proceeds will be used for expansion of the company's silicon wafer and solar cell and solar module production capacity.

Concurrently with the offering, JinkoSolar will enter into a capped call transaction with an affiliate of an initial purchaser. A portion of the proceeds will be used to pay for the capped call.

Mentioned in this article:

JinkoSolar Holding Co. Ltd. NYSE: ADS: JKS

Molycorp Inc. NYSE: MCP; mandatories NYSE: MCP-PA

PDL BioPharma Inc. Nasdaq: PDLI

Rovi Corp. Nasdaq: ROVI

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