AMAG Pharmaceuticals offers $150 million deal; Xilinx 3.125% notes steady; Medicines down

By Rebecca Melvin

New York, Feb. 10 - U.S. convertibles were quiet to start the week on Monday, with few market-moving headlines to foster market action as equities managed to eke out small gains following early weakness.

AMAG Pharmaceuticals Inc. launched an offering for $150 million of five-year convertibles after the market close that looked fairly typical in terms of valuation, one buysider commented. But given a lack of familiarity with the fundamentals of the small Lexington, Mass.-based biopharmaceutical company, he reserved judgment on the deal's merits.

Elsewhere, Xilinx Inc.'s 3.125% convertible debentures due 2037 were little changed early Monday but were not trading actively after the San Jose, Calif.-based programmable chipmaker called the $689.64 million of debentures for redemption.

"[The Xilinx convertibles] are not trading because holders are not sure if the company is going to allow holders to keep the final coupon before converting the bonds," a New York-based trader said.

The Xilinx convertibles have a very high parity, and investors are expected to convert rather than redeem on the slated redemption date March 17.

The Xilinx 3.125% debentures traded at 159.875, according to Trace data.

The Xilinx's 2.625% convertibles due 2017 were not heard in trade.

The Medicines Co.'s 1.375% convertibles due 2017 traded down sharply early Monday, but in line with their underlying shares, after word that an initial review of the U.S. Food and Drug Administration deemed the company's Cangrelor blood clot prevention drug as needing a new trial before being considered for approval.

The Medicines convertibles were quoted 131.5 bid, 132.5 offered versus an underlying share price of $32.00, a New York-based trader said. That was down about 6 points on an outright basis.

They "nuked straight down earlier this morning but may be up a small amount since then," the trader said.

Shares of the Parsippany, N.J.-based pharmaceutical company dropped 11% early in the day but ended the session down 5%, or $1.80, at $32.42.

Tesla Motors Inc.'s convertibles were trading actively during the session and were seen better by about 0.5 point on a hedged basis at the end of the day, a New York-based trader said.

Tesla shares have been on a tear since the middle of last week and on Monday hit a record high. Tesla's 1.5% convertibles are up about 1 point on a hedged basis over the course of the last few days, the trader said.

Tesla's convertibles were seen last 169.5 bid 170.5 offered versus the closing share price of $196.56 on the Nasdaq stock exchange.

Looking ahead, earnings news was expected to generate activity during the rest of the week. The upcoming earnings reports of PHH Corp., Covanta Holding Corp., Time Warner Cable Inc. and Alpha Natural Resources Inc. were among those expected to generate moves in the convertible market, a market source said.

Uptick in new issuance

Although it seems that new convertible deals are still only trickling in, market players count last week's $1.86 billion in new issuance in four deals as something of a pickup.

One syndicate source said that his firm has been "pretty busy with a lot of conversations with clients going on," and he predicted that issuance would get heavier over the next several weeks.

He suggested that the downturn in equities in January, which left the Standard & Poor's 500 stock index down about 5% from its 2013 high, was a factor in lighter convertible issuance to start the new year.

An East Coast-based buysider said he also thinks that issuance will become stronger as the markets plod further into the first quarter.

"It is not unreasonable to say that stocks being down 5% in January entered into the thought processes of CFOs, and they might have opted to wait a bit longer to determine if stock prices would head back up," the buysider said.

But companies that need funding such as NRG Yield Inc. late week aren't waiting, he said. NRG priced $300 million of convertibles last week.

The buysider said he likes the fundamentals of NRG, but not the structure of the deal, which "makes investors rely on the market revaluation to provide any equity upside," he said.

"Given that the company is valued and characterized by dividend performance, the structure took away any fundamental upside," he said.

AMAG Pharma to price

AMAG Pharmaceuticals plans to price $150 million of five-year convertibles after the market close Tuesday that were talked to yield 2.25% to 2.75% with an initial conversion premium of 30% to 35%.

The registered, off-the-shelf deal has an over-allotment option for up to $22.5 million and was being sold via J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC acting as joint bookrunning managers.

The non-callable notes are coming with a call spread and have takeover protection as well as net share settlement and contingent conversion if shares exceed 130% of the conversion price.

A portion of the proceeds will be used to pay the net cost of the call spread, with remaining proceeds for working capital and other general corporate purposes, including to fund possible acquisitions or investments in complementary businesses, services or technologies.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: AMR

AMAG Pharmaceuticals Inc. Nasdaq: AMAG

Covanta Holding Corp. NYSE: COV

The Medicines Co. Nasdaq: MDCO

NRG Yield Inc. Nasdaq: NYLD

PHH Corp. NYSE: PHH

Tesla Motors Inc. Nasdaq: TSLA

Time Warner Cable Inc. NYSE: TWC

Xilinx Inc. Nasdaq: XLNX

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