Convertibles quiet; Ironwood Pharmaceuticals, Avid launch deals; Tesla paper unchanged

By Rebecca Melvin

New York, June 8 – Convertibles got off to a quiet start on Monday as equities traded weakly and Treasuries regained some ground after a sell-off last week fueled by expectations the Fed may begin raising rates before the end of the year.

“It’s really quiet; traders are off the desk,” a New York-based sellsider said regarding Monday’s trading session.

Two new deals launched in the primary market after the market close, however. Ironwood Pharmaceuticals Inc. said it plans to price $300 million of seven-year convertible senior notes with a $45 million greenshoe via joint bookrunners J.P. Morgan Securities LLC and Credit Suisse Securities (USA) LLC, and Avid Technology plans to price $115 million of five-year convertibles with a $15 million greenshoe that was being sold by bookrunner Jefferies & Co.

Ironwood has a market capitalization of almost $2 billion, and Avid has a market capitalization of about $705 million.

Frontier Communications Corp.’s new 11.125% mandatories, which debuted in the market on Friday, were mostly quiet on Monday as shares of the Stamford, Conn.-based wireline telecommunications provider added 6.5 cents to $5.03.

Jarden Corp., which is a fairly active name in the convertibles space, saw its 1.5% convertibles change hands at 142.25 versus an underlying share price of $53.20. That level was based on Jarden’s closing share price on Friday, but those shares slipped 26 cents, or 0.5%, on Monday to close at $52.94.

Tesla Motors Inc.’s convertibles were called unchanged against shares of the electric car maker that rose about 3%.

Tesla shares were upgraded on Monday, a trader noted. Robert W. Baird raised its price target on Tesla shares to $335.00 from $275.00, with a “buy” rating, citing improving investor sentiment.

Overall there were no discernable trends in the convertibles market and participation was light, sources said.

“There was a tiny flurry at the beginning with the bell, and then it was a complete dead zone,” a sellsider said.

Frontier around par

Frontier’s 11.125% convertibles were quoted “wrapped around 100 to 100.375” on Monday, which was a little lower on an outright basis compared to Friday, when the new paper was called 101 at the close.

“People were flipping it, and then nothing. There was one trade in that today. People are trying to figure out what they actually think of it post flipping,” a sellsider said.

Frontier priced $1.75 billion of the mandatory preferred shares and a secondary stock offering for $750 million.

The deal priced on the rich end of talked terms, with a 17.5% initial conversion premium. Before pricing, the deal was seen at about fair value at the midpoint of talk, which was for an 11.125% to 11.625% dividend and 12.5% to 17.5% premium.

The new mandatory was very busy in trade early Friday.

Tesla unchanged

The Tesla 0.25% convertibles due 2019, or the A tranche, were seen near the close at 97.25, which was up about 0.5 point on an outright basis but unchanged on a dollar-neutral, or hedged, basis, a New York-based trader said.

Tesla’s 1.25% convertibles due 2021, or the B tranche, were up to 95.5 to 96 during the session.

The Tesla 1.5% convertibles due 2018 were last at 208.

All the issue prices were versus an underlying share price of $256.00, which was up $6.87, or 3%.

A trader said that the Tesla shares were up on the Baird upgrade. He noted that there is a Tesla shareholder meeting on Tuesday and that a second-quarter delivery announcement is expected as well as a Model X launch.

Some are “still betting” on a third-quarter Model X launch despite some skepticism on the timing.

Tesla shares are currently down 15% compared to their record high of $291.42 in September, a second New York-based trader said.

Ironwood plans deal

Ironwood, a Cambridge, Mass.-based pharmaceutical company focused on treatments for gastrointestinal illnesses, plans to price $300 million of seven-year convertible senior notes after the market close Tuesday at a 2.5% to 3% yield with a 30% to 35% premium.

The Rule 144A deal has an over-allotment option for $45 million additional notes and was being sold via joint bookrunners J.P. Morgan Securities LLC and Credit Suisse Securities (USA) LLC.

The notes are non-callable, with no puts, and have takeover and dividend protection.

In connection with the pricing of the notes, Ironwood expects to enter into convertible note hedge and warrant transactions, or a call spread.

Proceeds from the notes will be used to fund general corporate purposes, which may include repayment or redemption of all or a portion of its outstanding debt, the acquisition of or investment in strategic assets, and to pay the cost of the call spread.

Avid Technology plans deal

Avid, the Burlington, Mass.-based digital media company, plans to price $115 million of five-year convertibles at a 1.75% to 2.25% yield and a 32.5% to 37.5% premium.

The Rule 144A deal has a $15 million greenshoe and was being sold via Jefferies & Co. as bookrunner, with Houlihan Lokey as co-manager.

The notes are non-callable with no puts and have takeover and dividend protection.

In connection with the pricing of the notes, Avid plans to enter into convertible note hedge and warrant transactions, or a capped call.

Proceeds from the notes will be used to fund its previously announced acquisition of Orad Hi-Tec Systems Ltd. and to pay the cost of the capped call.

Avid also plans to use proceeds to pay for potential share repurchases, to repay its current credit facility, for working capital and for general corporate purposes.

Mentioned in this article:

Avid Technology Nasdaq: AVID

Frontier Communications Corp. NYSE: FTR

Jarden Corp. NYSE: JAH

Ironwood Pharmaceuticals Inc. Nasdaq: IRWD

Tesla Motors Inc. Nasdaq: TSLA

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