South Jersey, Deutsche on tap; Clovis convertibles ‘well received’; oil still catching bids

By Abigail W. Adams

Portland, Me., April 17 – After a week-long hiatus, the primary market is bringing new paper into the convertibles space.

South Jersey Industries, Inc. plans to price $250 million, or 5 million units, of three-year par of $50 mandatory convertible equity units after the market close on Wednesday.

Price talk is for a yield of 7% to 7.5% and a threshold appreciation range of 17.5% to 22.5%, according to a market source.

Each equity unit will consist of a contract to purchase shares of common stock and a 5% beneficial ownership interest in the company’s par of $1,000 series A junior subordinated notes due 2031.

Deutsche Bank AG, London Branch has launched a public offering of cash-settled equity-linked notes due May 1, 2023 linked to the common stock of JPMorgan Chase & Co., according to an FWP filing with the Securities and Exchange Commission.

The notes will be issued at 105% of par, with a minimum purchase of $100,000 and in minimum denominations of $1,000 and integral multiples of $1,000 in excess of that.

New paper from Clovis Oncology, Inc. hit a hungry secondary market on Tuesday and was performing well out of the gate, sources said.

Clovis priced an upsized $300 million offering of seven-year convertible notes after the market close on Monday to yield 1.25% with an initial conversion premium of 40%.

The notes expanded 1.25 points on their market debut, sources said.

Clovis’ 1.25% notes due 2025 were the major volume mover in the convertibles space on Tuesday. The Boulder, Colo.-based pharmaceutical company’s 2.5% notes also saw active trading with the new biotech paper spurring activity in other names in the sector.

While trading volume outside of the new paper remained relatively low, the tone of the market was good, sources said.

With credit spreads tightening, there is money in the convertibles space chasing yields, yet prices are holding firm, a market source said.

Transocean Inc.’s 0.5% convertible notes due 2023 were again active in the secondary space and climbing on an outright basis with names in the energy sector still seeing bids, a market source said.

Lam Research’s 2.625% exchangeable notes due 2041 and 1.25% convertible notes due on May 15 were active ahead of the Freemont, Calif.-based semiconductor company’s earnings report.

The 1.25% convertible notes are in their averaging period, a market source said.

Clovis’ deal

Clovis’ 1.25% convertible notes due 2025 were priced at the middle of price talk for a coupon of 1% to 1.5% and the rich end of talk for an initial conversion premium of 35% to 40%.

The deal was upsized from $200 million. The greenshoe was also upsized to $45 million from $30 million.

The securities were in high demand during the subscription process and in the secondary market where more than $100 million bonds traded during Tuesday’s session.

The notes were seen trading up to 102 with stock up soon after the opening bell but dropped on an outright basis to 100.5 bid, 101 offered as stock dropped off, a market source said.

The new 1.25% convertible notes were seen expanded 1.25 points to 1.75 points dollar neutral early in the session and were up about 1.25 points dollar neutral later in the afternoon, market sources said.

“It was well received,” a market source said. The concurrent $100 million stock offering of 1.84 million shares at $54.41 bolstered the convertible notes performance, the source said.

“With a stock deal, it’s usually pretty safe that the stock’s not going down too much,” the source said.

The convertible notes have a theoretical delta of 75% but will most likely trade with a 65% delta, a source said. “It’s a longer bond; people will probably play it wider,” the source said.

While Clovis’ new paper was in focus, the company’s 2.5% convertible notes due 2021 were also active. The notes were trading between 117 to 118 outright and were up a little dollar neutral, a market source said.

Clovis’ stock closed Tuesday’s session at $53.27, a decrease of 2.09%.

Health care active

With new health care paper entering the secondary space, trading activity surrounding other names in the sector increased, a market source said.

Insmed Inc.’s 1.75% convertible notes due 2025 were active during Tuesday’s session. The notes were trading north of 93 with stock up to $24.00. They were up about ¾ point dollar neutral, a market source said.

Exact Sciences Corp.’s 1% convertible notes due 2025 also saw some trading activity with the notes gaining about 2 points outright to trade up to 95.

Exact Sciences stock closed Tuesday at $47.68, an increase of 6.23%.

Transocean gains

Transocean’s 0.5% convertible notes remained a major volume mover on Tuesday after dominating trading activity in the space for much of last week.

The 0.5% convertible notes climbed about 4 points on an outright basis to trade as high as 136.5.

Transocean stock also continued to rise on Tuesday reaching $12.01, an increase of 1.61%. More than $21 million bonds were in play by mid-afternoon, a market source said.

Transocean’s convertible notes were on the rise alongside the price of crude oil for much of last week.

While the price of crude oil dropped on Monday and was up only slightly on Tuesday, oil “still seems to have a bid to it,” a market source said.

Lam Research

Lam Research’s convertible notes were also active on the tape in the run up to the company’s first-quarter earnings report, which was announced after the market close.

Lam Research’s 2.625% convertible notes due 2041 gained about 24 points outright to trade up to 626 on Tuesday.

The semiconductor company’s 1.25% convertible notes, which mature May 15, were up about 10 points outright to trade at 347.

Lam Research stock closed Tuesday at $212.33, an increase of 4.31%.

Lam’s 1.25% convertible notes are in the averaging period before they mature. The notes will be settled in cash up to the principal amount of each note with any excess conversion value delivered in shares.

Lam stock was $47.56 when the 1.25% convertible notes priced in 2011.

Mentioned in this article:

Clovis Oncology, Inc. Nasdaq: CLVS

Exact Sciences Corp. Nasdaq: EXAS

Insmed Inc. Nasdaq: INSM

JPMorgan Chase & Co. NYSE: JPM

Lam Research Corp. Nasdaq: LRCX

South Jersey Industries, Inc. NYSE: SJI

Transocean Inc. NYSE: RIG

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