Thompson Creek slides; Annaly on tap; Dendreon drops outright, on hedge; Salix seen flat

By Rebecca Melvin

New York, May 8 - Thompson Creek Metals Co. Inc.'s newly priced 6.5% convertible tangible equity units traded down on their debut in the secondary market Tuesday as the underlying shares extended losses sparked by the mining company's equity unit and straight bond offering plans.

"The deal went very poorly on an outright basis," an East Coast-based buysider said of the new Thompson Creek convertibles. "But if you were fully hedged, you did fine."

The stock's steep sell-off was blamed for hurting the convertible deal. But on a full hedge, the issues was seen about unchanged on a dollar-neutral, or hedged, basis.

Also in the primary market, Annaly Capital Management Inc. launched an offering of $750 million of three-year convertibles late Tuesday for pricing before the market open Wednesday. The notes were talked to yield 5% with a 15% initial conversion premium, according to a market source.

Back in established issues, Dendreon Corp.'s convertibles dropped more than 2 points on an outright basis, which is how much of the issue is predominantly played. But on a light delta of 25%, the issue was also down about a point dollar neutral after the Seattle-based biotechnology company reported a disappointing quarter and outlook.

Salix Pharmaceuticals Ltd.'s $600 million of 1.5% convertibles, which priced in March, traded flat on a dollar-neutral basis after the Raleigh, N.C.-based drug maker reported first-quarter earnings and revenue that beat expectations and guided for higher full-year profit on impressive growth of a pair of drugs to treat gastrointestinal ailments.

Vertex Pharmaceuticals Inc.'s convertibles and stock extended gains notched Monday after the Cambridge, Mass.-based biopharmaceutical firm announced phase 2 trial interim data that showed significant benefit for cystic fibrosis patients taking its Kaydeco drug.

Equities were under significant pressure for most of the session Tuesday, tumbling to their lowest level in two months, as European debt worries, particularly those concerning Greece, continued to weigh on investors; but stocks pared losses into the close.

As for how convertibles fared, a market source said, "There has been no major sell-off in the last couple days, just the regular amount of weakness that would be expected."

Weekend election results in Europe, which brought a socialist leader to the office of French president and more parliamentary seats to left and right fringes in Greece that are hostile to the Greek debt bailout deal have left markets wobbly.

The Dow Jones industrial average ended the session down 76.44 points, or 0.6%, at 12,932.09, Standard & Poor's 500 stock index ended down 5.86 points to 1,363.72, and the Nasdaq Composite index shed 11.49 points to 2,946.27.

Thompson Creek drops

Thompson Creek's newly priced 6.5% convertibles traded down to about 23 bid, 23.25 offered, from a 25 par, versus an underlying share price of $4.19, a trader said. Around noon ET, the new convertible was trading at 23.5 with the underlying shares at $4.25, a second source said.

Shares of the mining company based in Vancouver, B.C., and Littleton, Colo., fell 44 cents, or 9.5%, to $4.20 in heavy volume on Tuesday on the New York Stock Exchange, extending a slide of 90 cents, or 16% on Monday.

"The stock is trading like crap," a source said.

Despite the slide, if players were fully hedged, they did OK with the deal. The problem is that oftentimes buyers don't know exactly what their allocations are going to be, and there was speculation Tuesday that some players received higher allocations than expected and got caught flatfooted by not having hedged enough on Monday.

Thompson Creek priced an upsized $220 million of three-year convertible tangible equity units, or 8.8 million units at $25.00 each, to yield 6.5% with an initial conversion premium of 17.5%.

The registered deal was originally talked at $200 million in size, and pricing came at the midpoint of talk, which was 6.25% to 6.75% for the yield and 15% to 20% for the premium.

There is a greenshoe of an additional $30 million, or 1.2 million of units.

J.P. Morgan Securities LLC, Deutsche Bank Securities Inc. and RBC Capital Markets LLC were the bookrunners.

The equity units, or tMEDS, are non-callable with no puts and feature takeover protection. They will be listed on the New York Stock Exchange under the symbol TC PR T.

Each unit is composed of a prepaid stock purchase contract and a senior amortizing note due May 15, 2015.

Each purchase contract will automatically settle on May 15, 2015 for Thompson Creek common stock.

Dendreon drops outright

Dendreon's 2.875% convertibles due 2016 traded down to 77.75 on Tuesday, from 80 bid, 80.5 offered, according to a Connecticut-based trader.

The outright 2-point-plus loss was accompanied by a 1-point loss on a dollar-neutral basis, using a 25% delta.

Dendreon shares tumbled $2.94, or 25%, to $8.75 on Tuesday.

Dendreon's first-quarter loss narrowed to $103.9 million, versus a loss of $112.8 million in the year-earlier period. But modest sales of its prostate cancer treatment Provenge and a disappointing full-year outlook left investors heading for the exits.

Excluding severance expenses, the Dendreon loss was 59 cents per share, which was better than the 67-cent loss analysts expected.

Revenue jumped to $82 million from $27 million. Analysts were expecting revenue of $81.7 million.

Dendreon expects second-quarter sales growth in the low single digits and sees only modest growth for the rest of 2012.

"We continue to work on generating data for Provenge and our pipeline and we are preparing Provenge for global expansion, chief executive officer John Johnson told analysts on a conference call.

In March, the Seattle-based biotech company's convertibles jumped on speculation that the company might be acquired.

New Salix flat on hedge

Salix's newest 1.5% convertibles due 2019, of which $600 million priced in March, traded at about 103.5 versus an underlying share price of $51.00. That was more or less flat on a hedged basis, an East Coast-based trader said.

"You didn't really make any money on a hedged basis; it was flat," the trader said.

Salix's 2.75% convertibles due 2015 traded at 131, which was up 2 points.

Salix shares gained $2.52, or 5%, to $52.12.

The Raleigh, N.C.-based drugmaker, which specializes in drugs for gastrointestinal disorders, saw impressive 40% plus growth of its Xifaxan and Apriso drugs.

Xifaxan was initially approved to treat traveler's diarrhea, but in 2010 was approved in a more powerful form to treat hepatic encephalophy. Apriso is used to treat ulcerative colitis.

The company reported net earnings of 67 cents a share, excluding one-time items. That was nearly double the year-earlier number and beat analysts' average estimate by 10 cents.

The company's leading drug, Xifaxan, provided $112.9 million of the revenue.

Annaly Capital to price

Real estate investment trust Annaly Capital plans to price its $750 million offering, which has a $112.5 million greenshoe, before the market open on Wednesday via joint bookrunners Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and UBS Investment Bank.

In addition to the registered convertibles, Annaly plans to price an offering of series C cumulative redeemable preferred stock that was talked to yield 7.625% to 7.75%.

Proceeds are intended to be used to purchase mortgage-backed securities for the company's investment portfolio and for general corporate purposes, and proceeds may also be used to pay down debt.

Mentioned in this article:

Annaly Capital Management Inc. NYSE: NLY

Dendreon Corp. Nasdaq: DNDN

Salix Pharmaceuticals Ltd. Nasdaq: SLXP

Thompson Creek Metals Co. Inc. NYSE: TC

Vertex Pharmaceuticals Inc. Nasdaq: VRTX

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