Paratek, Ship Finance convertibles on tap; Jersey Industries, Deutsche Bank deals eyed

By Abigail W. Adams

Portland, Me., April 18 – Primary activity in the convertibles market picked up as four issuers prepared to sell an expected $775 million of new paper late Wednesday and into early Thursday.

Paratek Pharmaceuticals Inc. plans to price $125 million of six-year convertible notes prior to the market open on Thursday with price talk for a fixed coupon of 4.75% and a fixed initial conversion premium of 20%, according to a market source.

BofA Merrill Lynch and Leerink Partners are joint bookrunners for the Rule 144A deal, which carries a greenshoe of $18.75 million.

Ship Finance International Ltd. plans to price $150 million of five-year convertible notes prior to the market open on Thursday with price talk for a coupon of 4.375% to 4.875% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

Morgan Stanley & Co. LLC, Jefferies LLC and Citigroup Global Markets Inc. are bookrunners for the registered offering, which carries a greenshoe of $22.5 million.

In connection with the convertible note offering, Ship Finance will enter into share lending agreements with the underwriters for up to 7 million shares of common stock.

Deutsche Bank AG, London Branch plans to price $250 million of five-year cash-settled equity-linked notes tied to JPMorgan Chase & Co. after the market close on Wednesday at an issue price of 105. The deal “doesn’t look horrible,” although the vol. used for pricing seemed high, a market source said.

South Jersey Industries, Inc. plans to price $250 million of three-year mandatorily convertible equity units after the market close on Wednesday with price talk for a yield of 7% to 7.5% and a threshold appreciation range of 17.5% to 22.5%.

The deal looked cheap, sources said.

Lam Research Corp.’s convertible notes were major volume movers on Wednesday after the semiconductor company reported third-quarter earnings after the market close on Tuesday.

While both notes were down outright, few outright accounts hold the notes and the notes were unaffected by the price change, a market source said.

Meanwhile, the flurry of trading activity surrounding Clovis Oncology Inc.’s recently priced 1.25% convertible notes due 2025 tempered on Wednesday with few bonds seen on the tape.

Deutsche Bank’s synthetic

Deutsche Bank’s $250 million offering of five-year cash-settled equity-linked notes tied to JPMorgan “doesn’t look horrible,” a market source said.

Deutsche Bank plans to price the offering after the market close on Wednesday at an issue price of 105.

Price talk is for a fixed coupon of 1% and a threshold premium of 13% to 16%, according to a market source.

The deal looked fair and offered good exposure to JPMorgan stock, a market source said. “The stock is a monster,” the source said.

The deal is being priced with a 28% vol., which “is stretching it a little,” the source said. The long-term vol. looked to be about 18%, the source said.

The initial price will be the volume weighted average price of JPMorgan stock on the day after pricing. JPMorgan stock closed Wednesday at $109.32, a decrease of 0.81%.

The offering is Deutsche Bank’s second offering of cash-settled equity-linked notes. Deutsche Bank priced $300 million of 1% cash-settled equity-linked notes due 2023 tied to Voya Financial Inc. stock in early March.

JPMorgan Chase Financial Co. LLC and BofA Finance LLC also recently priced offerings of five-year cash-settled equity-linked notes tied to Voya.

The deals were an effort to monetize their Voya warrants, market sources said.

The most recent deal is either an effort to monetize warrants or the product of a reverse inquiry, sources said.

South Jersey looks cheap

South Jersey Industries’ offering of $250 million of three-year mandatorily convertible equity units looks about 1.5 points cheap, a market source said.

The Folsom, N.J.-based energy services holding company plans to price 5 million units with a par value of $50 after the market close on Wednesday with price talk for a yield of 7% to 7.5% and a threshold appreciation range of 17.5% to 22.5%.

The units 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.

Concurrently with the mandatory convertible equity units, South Jersey Industries is pricing $325 million shares of common stock, a portion of which may be subject to a forward sale agreement the company expects to enter into.

With a large equity offering, a decent borrow and decent vol., the deal should do well, a market source said. “I don’t think it will blow out but it should go well,” the source said.

South Jersey Industries is a decent name, the source said, and proceeds are being used to fund two acquisitions.

The energy sector has also been on the rise following the dramatic increase in the price of West Texas intermediate crude oil last week.

Clovis slows

After dominating the secondary market on Tuesday with more than $100 million bonds traded, Clovis’ new 1.25% notes were slow to trade on Wednesday. Only $4 million bonds were on the tape by mid-afternoon, a market source said.

However, the 1.25% notes “held up,” the source said. The 1.25% notes were seen trading just above par with stock down about 0.5% early in Wednesday’s session.

They were seen trading at 101 with stock at $53.77 mid-afternoon. The notes were trading in line dollar neutral, a market source said.

Lam’s earnings

Lam Research’s convertible notes were among the major volume movers of Wednesday’s session with the notes dropping on an outright basis alongside stock after the company released its third-quarter earnings report after the market close on Tuesday.

Lam Research’s 2.625% convertible notes due 2041 dropped about 30 points outright to trade at 600. About $12 million bonds traded during Wednesday’s session.

Lam Research’s 1.25% notes due May 15, 2018 dropped about 10 points outright to trade at 333. With more than $17 million bonds in play, the notes were the most heavily traded of Wednesday’s session.

The 1.25% notes are in the averaging period prior to maturity.

While the notes dropped outright, few outright accounts are holders of the notes, which are mostly held by arbitrageurs, a market source said.

Lam Research’s stock would have to drop about 50% “before anything exciting happens,” a source said.

Lam Research stock was down to $203.77, a decrease of 4.03%, at the market close on Wednesday.

Lam Research reported third-quarter earnings after the market close on Tuesday. Lam reported revenue of $2.89 billion and non-GAAP earnings per share of $4.79 in the third quarter, which beat analyst expectations.

However, Lam’s outlook for shipments in the fourth-quarter was lower than anticipated.

Mentioned in this article:

Clovis Oncology, Inc. Nasdaq: CLVS

JPMorgan Chase & Co. NYSE: JPM

Lam Research Corp. Nasdaq: LRCX

Paratek Pharmaceuticals Inc. Nasdaq: PRTK

Ship Finance International Ltd. NYSE: SFL

South Jersey Industries, Inc. NYSE: SJI

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