Health care names weaker after Actavis launches large mandatory; Priceline slightly better

By Rebecca Melvin

New York, Feb. 19 – Health care names in the convertibles space were generally weaker Thursday on the heels of the launch of Actavis plc’s $4.2 billion of mandatory convertible preferred stock.

Actavis plans to buy Allegan Inc. with $4.2 billion in stock, $4.2 billion in mandatories and other debt financing.

Sellers materialized in the convertibles of BioMarin Pharmaceutical Inc., Hologic Inc., Jazz Pharmaceuticals Inc., among others, and including the new Wright Medical Group Inc. bond, which priced last week.

“It’s the first sign of paper and reminded people that there will probably be more on the way,” a New York-based trader said.

But Molina Healthcare Inc. was an exception to the general down beat, and the convertibles of the Long Beach, Calif.-based health management organization were said to be up on swap against the underlying shares that were down 71 cents, or 1%.

The Molina bond was quoted at 155.625 versus a share price of $61.12, which was the close.

“It seems like trades were clustered around there, and they were a little better on swap,” a trader said.

Actavis is pricing $4.2 billion of common stock and $4.2 billion of mandatory convertibles, along with other debt financing, to fund the company’s purchase of Allergan. The deals were expected to price next week. The mandatories were talked at a 5.75% to 6.25% yield and a 17.5% to 22.5% premium.

Several convertibles issuers reported quarterly results that spurred trades in their convertible debt Thursday.

Priceline Group Inc. posted earnings that were better than forecasted, sending shares of the Norwalk, Conn.-based internet travel services company up 8.5%.

SolarCity Corp.’s two convertible bond issues were trading down on an outright basis after the San Mateo, Calif.-based solar company posted results that were weaker than expected, and the company guided lower for the current quarter.

The SolarCity 2.75% convertibles due 2018 traded at 104.96, which was down from about 111, according to Trace data. SolarCity shares were also down 5% to 6%.

The SolarCity 1.625% convertibles due 2019 traded at 88.5.

SunEdison Inc.’s convertibles also traded some after the St. Peters, Mo.-based solar company posted a narrower-than-expected fourth-quarter loss.

SunEdison shares were up 2% initially but ended in negative territory by a nickel at $21.97. The bonds were roughly unchanged, a New York-based trader said.

“The new ones might be up a little tiny bit,” the trader said regarding the SunEdison’s 2.375% convertibles, or the Ds, which priced last month, and are the newest convertible of the St. Peters, Mo.-based solar technology company.

Health care names weaker

Hologic’s 2% convertibles due 2037 traded at 143.123, which was up 3.4 points on an outright basis, against shares that were up nearly 3% at $31.67. That was seen lower on swap.

“There were some hits,” a trader said regarding trades lower of names like Hologic, BioMarin, Gilead and Mylan.

“There were notably lower prints,” he said.

Canaccord increased its price target on Hologic, the Bedford, Mass.-based medical diagnostics company, to $37 from $29, but it downgraded its rating to “hold” from “buy.”

“Some health care vol. names were weaker as if people might be making room for the Actavis mandatory, or if not for that one, in anticipation of other new paper that might be coming,” a New York-based trader said.

The new Wright Medical convertible came in slightly by 0.125 point to 0.25 point, he said. Other issues that were feeling weaker included Illumina Inc. and those of Gilead Sciences Inc. and Acora Therapeutics Inc.

Actavis plans to price its three-year mandatories to yield 5.75% to 6.25% with an initial conversion premium of 17.5% to 22.5%, according to market sources.

The company is also pricing a concurrent issue of $4.2 billion of common stock in a separate registered offering.

Proceeds from the two deals, together with additional debt financing, will be used to finance the cash consideration for its acquisition of Allergan.

The series A preferred shares, each with a $1,000 liquidation preference, will price Feb. 26 and mature March 1, 2018.

There is a 10% greenshoe for the mandatories, which are being sold via joint bookrunning managers Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC, Mizuho Securities, Wells Fargo Securities LLC, Barclays and Citigroup Global Markets Inc.

The offerings are not contingent upon each other or the consummation of the Allergan acquisition. If the acquisition doesn’t close, Actavis will use proceeds for general corporate purposes.

Actavis is a global specialty pharmaceutical company with headquarters in Parsippany, N.J. Allegan is a health care company based in Irvine, Calif. The new company will be called Allergan.

Priceline a little better

Priceline’s 1% convertibles due 2018 rose 7 points in active trade to nearly 140, according to Trace data, with shares at $1,214.89.

Also trading was Priceline’s 0.9% convertibles due 2021 which were up nearly 2 points at 96.8, and Priceline’s 0.35% convertibles due 2020, which were up 4 points to 116.

“They were all slightly better to buy,” a trader said of the Priceline convertibles and noting that the Tesla A’s were also a little better on the day.

Helping Priceline’s quarterly results was an increase in international online travel bookings.

Priceline said its international gross bookings grew by 27% on local currency in the 2014 fourth quarter.

“The group’s full-year room night reservations of 346 million grew by 28%, leading to gross booking for the group of just over $50 billion,” Priceline said in a news release.

For the recently concluded quarter, the company earned $451.8 million, or $8.56 per share. Excluding one-time items, earnings were $10.85 per diluted share compared to the $8.85 per diluted share reported for the 2013 fourth quarter and better than analysts expected.

Revenue rose to $1.84 billion, which was better than the $1.8 billion that was expected.

Looking ahead, Priceline said that it expects the strong dollar will be a strong headwind. It expects adjusted earnings for the current quarter ending in March to range between $7.20 and $7.75 per share, which was well below what analysts expected.

Shares were also boosted by news that the company has authorized share buybacks for up to $3 billion in stock.

Mentioned in this article:

Actavis plc NYSE: ACT

BioMarin Pharmaceuticals Inc. Nasdaq: BMRN

Hologic Inc. Nasdaq: HOLX

Jazz Pharmaceuticals Inc. Nasdaq: JAZZ

Molina Healthcare Inc. NYSE: MOH

Priceline Group Inc. Nasdaq: PCLN

SolarCity Corp. Nasdaq: SCTY

SunEdison Inc. Nasdaq: SUNE

Wright Medical Group Inc. Nasdaq: WMGI

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