New Salix pops, then retreats on debut; Medivation talk revised; Wintrust notes to price

By Rebecca Melvin

New York, March 13 - Salix Pharmaceuticals Ltd.'s newly priced 1.5% convertibles traded up some on their debut in the secondary market early Tuesday after the deal was upsized by $100 million to $600 million and priced on the rich end of coupon talk late Monday.

But the new paper retraced most of that initial pop "as valuation seemed somewhat stretched" at the highs, a New York-based trader said.

Salix's existing 2.75% convertibles traded lower on a dollar-neutral, or hedged, basis. The Salix 5.5% convertibles, which are being repurchased with some of the proceeds of the new deal, weren't heard in trade.

Premium talk on the planned $175 million of Medivation Inc. convertible senior notes was tightened up during the session to 42.5% to 45% from 37.5% to 42.5%, but coupon talk remained unchanged at 2.625% to 3.125%.

The Medivation deal was said to be well oversubscribed, and there was chatter that it might be upsized, but there was no confirmation of that at Prospect News' deadline.

Also in the primary market, Wintrust Financial Corp. launched an offering of $110 million of perpetual convertible preferred stock after the market close for pricing before the market open on Wednesday.

During the session, many players were focused on the day's new deals and there was little mention of secondary market trading, which seemed to be dominated by investment-grade names like Gilead Sciences Inc., of which the 1% convertibles were trading actively, as well as Amgen Inc. and EMC Corp.

"Other than that, people were sort of watching the equity market improving," a New York-based sellsider said.

The stock market posted its best day of the year so far, with the Dow Jones industrial average jumping 217.97 points, or 1.7%, to 13.177.68, the S&P 500 stock index gaining 24.86 points, or 1.8%, to 1,395.95; and the Nasdaq stock market running up another 56.22 points, or 1.9%, 3,039.88.

Helping equities were good readings on the U.S. economy including U.S. retail sales that rose at their fastest pace in five months in February. The U.S. Federal Reserve took no new action and acknowledged that the U.S. labor market has improved and recent strains on financial markets were easing.

Secondary has richened

The new issuance that the convertible market has seen in the last two weeks has perked up the market, but more is needed, sources said, if the rate of new issuance is going to keep pace with the rate of redemptions of existing paper.

The lack of new paper has contributed to the secondary market richening up from the beginning of the year, especially in the first half of February, by about 2% to 2.5%, an East Coast-based buysider said.

Convertibles went from 3.5% to 4% cheap globally - although less cheap in the U.S. - to slightly less than 1% below fair value.

"There is still some value out there, but it's a more bifurcated market, with one side fair to rich, and investment grade is overvalued and hard to find; while the rest of the market has pockets of value," the portfolio manager said.

Of the new paper that has come in the last couple of weeks, the portfolio manager said, "Terms are a bit stretched by historical terms, but the market has been willing to accept it."

Priceline.com Inc.'s $1 billion deal that priced last week came with an unusually high 50% premium, for example. But the positive side of that is that it may encourage more potential issuers into the convertible market due to the low costs of capital, the buysider noted.

Upsized Salix edges up, slips

Salix Pharmaceuticals' newly priced 1.5% convertibles due 2019 were quoted extensively at 101.25 bid, 101.75 offered versus an underlying share price of $49.00.

Shares of the Raleigh, N.C.-based gastrointestinal drug maker moved higher than that at the end of the day, settling up by $2.37, or nearly 5%, at $51.12.

The company was described as one that has "some good prospects" with medicines that were expected to be profitable.

An analyst noted that the company has two "PDUFA dates this year," meaning that the Food and Drug Administration was expected to complete reviews on two of its drug applications.

"That's good for volatility," he said.

Salix launched a $500 million Rule 144A offering of seven-year convertible senior notes on Monday. The deal was upsized to $600 million and it was valued at pretty much fair value to slightly cheap, and that's how it traded.

Price talk for the new convertible was for a coupon of 1.5% to 1.75% and an initial conversion premium of 35%.

The Rule 144A offering has a greenshoe of $75 million and was being sold via Bank of America Merrill Lynch.

The notes are non-callable and may not be put. There is a call spread attached to the deal, which boosts the effective initial conversion premium from the issuer's perspective to 75%.

Existing Salix flat to lower

Salix's existing 2.75% convertibles of 2015, which is a $300 million issue priced in June 2010, were quoted at 128.5 bid, 129.25 offered versus an underlying share price of $49.00 on Tuesday, compared to 126 versus an underlying share price of $47.75 on Monday.

The convertibles are lower on a dollar-neutral basis using a 65% hedge, the analyst said. Another source called them down on a hedged basis by 0.5 point to 1 point.

"We thought it would go down," the analyst said of the older Salix.

"But these might do better in a volatility event," he said, given that it's three-year paper with a 23% premium, compared to the new notes, which are seven-year paper with a premium of 27%.

The 5.5% convertibles due 2028 weren't heard in trade. The company signed a note repurchase agreement with the holder of a majority of those notes under which Salix will use a portion of the proceeds from the new notes to purchase a portion of the holder's notes for about $120.4 million.

Medivation to price

Premium price talk on Medivation's $175 million deal was revised to 42.5% to 45%, up from 37.5% to 42.5%, a syndicate source said.

Coupon talk on the notes was left unchanged at 2.625% to 3.125%.

The San Francisco-based biopharmaceutical company planned to price the five-year convertible senior notes on Tuesday after the market close.

There was chatter about upsizing the deal, which was well subscribed. Although attaching a credit value to it was difficult.

"There's nothing but a phase 3 completed drug, and there is already competition out there," a Connecticut-based analyst said.

The new paper modeled about 1.875% to 2% cheap at the midpoint of talk, using a credit spread of about 700 basis points to 750 bps over Libor and a 45% vol.

But there was talk of higher spreads up to 1,000 bps over Libor. Using that and a 45% vol. made the paper a little rich.

Wintrust to price

Wintrust launched an offering of $110 million of perpetual convertible preferred stock after the market close on Tuesday that it planned to price ahead of the market open on Wednesday.

Price talk was for a dividend of 4.5% to 5% and an initial conversion premium of 17.5% to 22.5%.

The registered deal has a $16.5 million greenshoe and was being sold via bookrunners RBC Capital Markets and Bank of America Merrill Lynch, with co-managers Sandler O'Neill + Partners LP and Wells Fargo Securities.

The preferreds are non-callable until April 15, 2017 and then callable if the stock exceeds 130% of conversion for 20 out of 30 trading days.

Proceeds are expected to be used for general corporate purposes, including capital support for growth, acquisitions and reducing or refinancing debt.

Wintrust is a Lake Forest, Ill.-based financial holding company.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

EMC Corp. NYSE: EMC

Gilead Sciences Inc. Nasdaq: GILD

Medivation Inc. NYSE: MDVN

Salix Pharmaceuticals Ltd. Nasdaq: SLXP

Wintrust Financial Corp. Nasdaq: WFTC

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.