Tesaro convertibles active, up on buyout by GlaxoSmithKline; iQIYI, Liberty Media gain

By Abigail W. Adams

Portland, Me., Dec. 3 – The convertibles secondary space saw an uptick of activity on Monday with the market continuing to firm as equities improved in the wake of the trade war truce reached between U.S. president Donald Trump and China president Xi Jinping over the weekend.

iQIYI Inc.’s 3.75% convertible notes due 2023 were among the benefactors of the thawing of hostilities with the notes making large gains on a dollar-neutral basis on Monday.

The recently priced convertible notes from DexCom Inc. and exchangeable notes from Liberty Media Corp. also continued to improve in secondary trading.

While trade war news buoyed the overall market, Tesaro Inc.’s 3% convertible notes due 2021 were the focus of trading activity after the company announced it would be bought out by GlaxoSmithKline.

The already deep-in-the-money convertible notes improved on both an outright and dollar-neutral basis in high volume activity following the news.

Competitor Clovis Oncology Inc.’s long struggling 1.25% convertible notes due 2025 also improved as stock jumped in sympathy.

iQIYI day two

iQIYI’s 3.75% convertible notes due 2023 were making gains on an outright and dollar-neutral basis on Monday.

The secondary performance of the recently priced notes was boosted by a positive meeting between the presidents of the United States and China at the G20 summit.

The Beijing-based online entertainment platform’s 3.75% convertible notes were up about 2 points outright.

They were seen changing hands as high as 106 in the morning although they came in alongside stock to trade at 105 in the afternoon, sources said.

The notes were up about 1 point dollar-neutral. “That’s due to the Chinese twist,” a market source said.

iQIYI stock traded as high as $21.80 on Monday but closed the day at $20.73, an increase of 2.07%.

More than $14.5 million of the bonds were on the tape by the late afternoon.

The notes have performed well since they hit the secondary space on Friday.

They pushed past 103 on an outright basis and were expanded about 1 point dollar-neutral in high volume activity during Friday’s session.

Recent deals

Several of the deals to price last week also continued to improve in secondary trading.

DexCom’s 0.75% convertible notes 2023 were up both outright and dollar-neutral in active trading on Monday.

The notes were up 2.75 points outright to trade north of 106, a market source said. More than $28 million of the bonds were on the tape by the late afternoon.

DexCom stock closed Monday at $136.59, an increase of 5.4%.

The $100 million greenshoe on the notes, which priced at par on Nov. 28, was fully exercised, lifting the overall size of the deal to $850 million.

The deal was the largest convertible notes offering to price in the fourth quarter, which has seen primary market activity taper off as volatility roiled equities and credit spreads blew out.

Liberty Media’s 2.25% exchangeable notes due 2048 also saw gains on an outright and dollar-neutral basis.

The 2.25% notes rose another 0.5 point outright to trade at 104. They were improved about 0.25 point to 0.5 point dollar-neutral, a market source said.

About $9 million of the bonds were on the tape by the late afternoon.

The 2.25% notes, which are exchangeable for Live Nation Entertainment Inc. stock, priced at a discounted reoffer price of 99.5, due to investor pushback, sources said.

Live Nation stock closed Monday at $55.44, a decrease of 0.43%.

Tesaro’s buyout

Tesaro’s 3% convertible notes due 2021 dominated trading activity in the secondary space with the notes jumping to above double par as the company’s equity soared.

The notes were up more than 60 points outright and gained about 1.5 points to 2 points dollar-neutral, sources said.

The notes were seen trading at 215.625 versus an equity price of $73.57 in the late afternoon.

Tesaro stock closed Monday at $73.50, an increase of 58.47%.

Tesaro announced on Monday that it had entered into a definitive agreement with GlaxoSmithKline.

GlaxoSmithKline has launched a tender offer for the cancer biotech company’s outstanding shares for $75.00 a share.

The deal is valued at $5.1 billion and includes the assumption of Tesaro’s debt, the company said in a press release.

The 3% convertible notes will be converted out with extra shares given upon conversion, in accordance with the takeout make-whole table, a market source said.

However, the change of control covenant will not be triggered until the deal closes, which is expected to occur in mid-January, the source said.

Clovis boosted

News of Tesaro’s buyout helped buoy competitor Clovis Oncology.

The company’s long struggling 1.25% convertible notes due 2025 rose 5 points outright to trade between 69.5 and 69.75 on an outright basis, according to Trace data.

They were improved about 3 points dollar-neutral, a market source said.

Clovis’ 2.5% convertible notes due 2021 were also up about 5 points outright and 3 points dollar-neutral. The 2.5% notes traded up to 83.25 in light volume.

Clovis stock traded as high as $22.25 before closing Monday at $19.08, an increase of 10.87%.

The 1.25% convertible notes have been pointed to as one of the worst performing deals of 2018 with stock losing more than 50% of its value since the notes priced at par in April.

Clovis stock was $54.41 when the 1.25% convertible notes priced.

Mentioned in this article:

Clovis Oncology Inc. Nasdaq: CLVS

DexCom Inc. Nasdaq: DXCM

iQIYI Inc. Nasdaq: IQ

Live Nation Entertainment Inc. NYSE: LYV

Tesaro Inc. Nasdaq: TSRO

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