Tesaro convertibles add outright, dollar neutral on debut; SolarCity stock up on new deal

By Rebecca Melvin

New York, Sept. 24 – Tesaro Inc.’s newly priced 3% convertible bonds added on their first day of trading Wednesday after the Waltham, Mass.-based biopharmaceutical oncology company priced an upsized $175 million of the seven-year notes at the cheap end of talk. Shares, which fell 9% on Tuesday after the deal was launched, were slightly weaker early Wednesday before ending in positive territory by 1 cent.

The new Tesaro bonds were about 102 with the stock around $26.00. That was up 1 point to 1.25 points on a dollar-neutral basis, a syndicate source said.

There was “healthy, two-way flow, with better buying interest as the morning progressed,” the source said.

Market players were also sizing up the planned SolarCity Corp. deal, which launched after the market close Tuesday. SolarCity’s $500 million offering of five-year convertible bonds was being valued by the underwriters using a credit spread of 465 basis points over Libor and a 42% vol.

SolarCity shares surged in the early going Wednesday, trading higher by $4.48, or 7.4%, to $64.92. But they pulled back to a 4.4% gain at $63.04 by the close.

SolarCity’s existing 2.75% convertibles traded higher on an outright basis but lower on swap in reaction to the new deal.

One notable name was SunEdison Inc. All three of its convertible bonds traded Wednesday and were higher both on an outright basis and on swap as shares of the St. Peters, Mo.-based solar technology company gained 5% amid ongoing takeout chatter.

Qihoo 360 Technology Co. Ltd.’s convertibles were higher as large, long-only buyers stepped into trade, a New York-based trader said.

Also Acorda Therapeutics Inc. shares surged 28% after the Ardsley, N.Y.-based company said that it has entered into an agreement to buy Civitas Therapeutics for $525 million in cash. Civitas has a drug candidate in phase 3 trials to treat symptoms of Parkinson’s disease.

Acorda’s 1.75% convertibles were indicated to have surged to 110 from about 97.

Elsewhere, things were pretty quiet overall, sources said, as a “wait and see” tone began to descend on the market.

“It seems like some stability has returned,” a New York-based trader said of convertibles. “There had been the expectation of a lot of primary, but the calendar didn’t bring all that much. I suppose it is wait-and-see mode now, but the recent trend intimates that funds are fully allocated to the product.”

Equities rallied, snapping a three-day losing streak, and volatility dropped during the session. Investors were cheered by new housing sales data for August, which was better than expected but on slimmer pricing margins.

U.S. new-home sales surged 18% for the month to a seasonally adjusted 504,000, the Commerce Department said.

New Tesaro gains

Tesaro’s new 3% convertibles due 2021 traded up by a point or more on a hedged basis after the new bonds priced at the cheap end of talked terms.

The new bonds were seen changing hands at about 102 versus an underlying share price of about $26.00.

“It came pretty cheap,” a New York-based trader commented.

A syndicate source said that the new bonds traded actively.

The deal had been looking to have a stretched valuation when market players were looking at the deal on Tuesday.

Tesaro shares, which fell, $2.59, or 9%, to $26.02 on Tuesday, gained a penny to close at $26.03 on Wednesday.

The registered deal was upsized to $175 million from $165 million planned. It was being sold via joint bookrunners Citigroup Global Markets Inc. and Deutsche Bank Securities Inc., with Leerink Partners, Baird and BMO Capital Markets Corp. acting as co-managers.

In connection with the pricing of the notes, Tesaro was entering into capped call transactions with Citigroup and Deutsche Bank AG. The cap price boosts the initial conversion premium from the issuer’s perspective to 75%.

Proceeds will be used to fund the capped call transactions and to fund Tesaro product candidates, including rolapitant and niraparib, to carry out Tesaro’s immune-oncology platform strategy, and for working capital and general corporate purposes.

SolarCity deal eyed

SolarCity’s stock borrow was said to be difficult, which will hinder hedged players’ participation.

“It will be challenging, but the Elon Musk cult following is something you cannot model,” a New York-based trader said.

Musk is SolarCity’s chairman and also chief executive officer of Tesla Motors Inc. Both companies have become darlings with investors, attracted to the potential power houses of clean energy and battery power.

A second trader, based in Connecticut, noted that SolarCity despite its big market capitalization, “doesn’t feel like a sub 500 bps credit.” There’s no EBITDA expected until 2016, he said. Nevertheless he said he likes the 465 bps spread.

SolarCity plans to sell $500 million of five-year convertible senior notes at a coupon of 1.125% to 1.625% and an initial conversion premium of 32.5% to 37.5%.

The Rule 144A deal is coming together with a capped call overlay. There is a $75 million greenshoe for the offering being sold via joint bookrunners Goldman Sachs & Co., BofA Merrill Lynch and Credit Suisse Securities (USA) LLC, with co-managers Barclays and Deutsche Bank Securities.

SolarCity has an existing 2.75% convertible due November 2018 that traded down by about 0.75 point on a hedged basis, according to a trading source.

They were weaker on swap on the back of the new deal on the relative valuation, the source said.

The old SolarCity bonds were higher outright, however, moving up with higher shares. The bonds were seen last at about 126 compared to 123 previously.

Shares surged in the early going but pared some of those gains for a 4% higher close.

Earlier they had been higher by more than 7%.

As for why shares rose, one source said, “It’s not a total shock that they were raising more money; equity investors may be happy that the company has the runway to proceed with their capital plans.”

The Rule 144A deal was expected to price after the market close Wednesday.

The San Mateo, Calif.-based provider of clean distributed energy.

SunEdison expands

All three SunEdison convertibles rose outright and on a hedged basis by about 0.25 point to 0.375 point, a New York-based trading source said.

SunEdison’s newest 0.25% convertible due 2020 was seen ending the session at 101 bid, 101.5 offered.

The SunEdison 2% convertibles due 2018 were seen at 153.5 at the close, and the SunEdison 2.75% convertibles due 2021 were at 156.5.

SunEdison shares added 98 cents, or 5%, to $20.28.

The gains were prompted by speculation regarding the prospects of a GE Corp. takeover. A $35.00 takeout was rumored, and even though GE rebuffed it, “the bonds are up small today on the hopes that a high premium would be positive for the bonds,” a trader said.

Mentioned in this article:

Acorda Therapeutics Inc. Nasdaq: ACOR

Qihoo 360 Technology Co. Ltd. Nasdaq: QIHU

SolarCity Corp. Nasdaq: SCTY

SunEdison Inc. Nasdaq: SUNE

Tesaro Inc. Nasdaq: TSRO

© 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.