Cytokinetics looks cheap; Stanley Black & Decker tightens talk; China convertibles rise

By Abigail W. Adams

Portland, Me., Nov. 7 – The convertibles primary market continued to churn out new deals with one pricing after the market close on Wednesday and two more on deck for after the market close on Thursday.

Arbor Realty Trust Inc.’s newly priced 4.75% senior notes due 2021 were not active in the secondary space on Thursday with the majority of allocations going to the previous holders of the 5.25% senior notes due 2021, according to a market source.

Cytokinetics Inc. plans to price $100 million of seven-year convertible notes and Stanley Black & Decker Inc. plans to price $675 million three-year $100-par equity units after the market close on Thursday.

While Cytokinetics’ deal looked cheap, the biotech company is a risky credit, a market source said.

Stanley Black & Decker’s new offering of equity units was heard to be in demand with price talk tightening during bookbuilding.

Meanwhile, the secondary space was firm on Thursday as equity markets again broke out to record heights on news that China and the United States had agreed to roll back tariffs.

Several convertibles from China-based companies were posting gains on the news, a market source said.

Arbor Realty’s exchange

Arbor Realty’s newly priced 4.75% convertible notes due 2021 were not active in the secondary space on Thursday.

The deal was mostly a swap with holders of the REITs 5.25% senior notes, a market source said.

Concurrently with the pricing of the 4.75% convertible notes, Arbor Realty entered into privately negotiated transactions to exchange its 5.25% convertible notes for cash and shares.

The conversion price is still to be determined and will be based on the average weighted share price over the next two trading days.

The conversion premium was structured that way so the hedge players involved in the deal could close out their positions in the 5.25% notes, a market source said.

While the conversion price is still to be determined, the new 4.75% notes are a good deal as a stand-alone bond with a decent yield from a solid credit, a source said.

There was good demand for the offering, a market source said. The deal was upsized to $230 million from the initially announced $215 million.

Cytokinetics eyed

Cytokinetics plans to price $100 million of seven-year convertible notes after the market close on Thursday.

Price talk for the offering is for a coupon of 3.5% to 4% and an initial conversion premium of 27.5% to 32.5%.

The deal modeled cheap at the midpoint of talk using assumptions of a credit spread of 1,000 bps over Libor and a 45% vol., sources said.

One source pegged the notes about 3.25 points cheap at the mids.

However, the company is a “cash burning biotech,” and the credit is risky, another source said.

The coupon range seemed low given the risks involved, a market source said.

Seven years is a long maturity for a convertible note, which was also a drawback of the deal.

The company has enough cash to last for the next two years, a market source said. However, the future beyond that is iffy.

Cytokinetics is a small company with a market cap of $500 million. Given the size of the company, the deal was not on a lot of players’ radar, a source said.

Cytokinetics stock took a beating on news of the convertible notes offering. Stock dropped to close Thursday at its intraday low of $8.275, a decrease of 23.63%.

While several hedge players were interested in the high vol. name, the deal will need a buyer for the bonds if the company’s stock bottoms out.

Stanley tightens talk

Stanley Black & Decker plans to price $675 million three-year $100-par equity units after the market close on Thursday.

The deal was heard to be in demand with price talk tightened during bookbuilding, a market source said.

Revised price talk was for a dividend of 5.25% to 5.5% and a threshold appreciation premium of 20% to 25%, a source said.

Initial talk was for a dividend of 5.5% to 6% and a threshold appreciation premium of 15% to 20%.

While the dividend tightened, the real jump was in the threshold appreciation premium, which greatly reduced the attractiveness of the deal, a market source said.

“I’m not a fan of a mandatory with a premium over 20%,” the source said.

The company is a well-known name in the convertibles universe and a serial issuer of equity units.

Proceeds from the new equity unit offering will be used to redeem the company’s 5.75% junior subordinated debentures due 2052.

The deal also comes with a call spread.

With proceeds being used to take out a 50-year bond and the call spread preventing the dissolution of equity, the deal is credit positive for the company.

The debt on the balance sheet will be reduced, which the market will like, a source said.

China-based notes

News that the United States and China had agreed to roll back tariffs if a trade agreement is reached sent equity markets to all-time highs on Thursday.

The convertible notes of several China-based companies were the major benefactors in the secondary space, a market source said.

Nio Inc.’s long-busted 4.5% convertible notes due 2024 traded up to 35 on Thursday, a market source said.

The notes closed out the previous week on a 28 handle.

Nio stock traded as high as $2.20 before closing Thursday at $2.07, an increase of 1.97%.

iQIYI Inc.’s 2% convertible notes due 2025 were major volume movers in the secondary space with the notes also posting gains.

The 2% notes rose 5 points outright to 97.25 by the mid-afternoon.

iQIYI’s stock closed Thursday at $20.00, an increase of 14.55%.

Mentioned in this article:

Arbor Realty Trust Inc. NYSE: ABR

Cytokinetics Inc. Nasdaq: CYTK

iQIYI Inc. Nasdaq: IQ

Nio Inc. NYSE: NIO

Stanley Black & Decker Inc. NYSE: SWK

© 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.