Intelsat adds outright; Theravance bonds mixed; Boston Properties' called bonds in focus

By Rebecca Melvin

New York, April 18 - Intelsat SA's newly priced 5.75% mandatory convertible preferreds bumped around out of the chute Thursday but traded strongly through much of the session before ending the day higher on an outright basis but flat on a dollar-neutral basis.

Intelsat's $150 million mandatory priced on the tight end of talked terms and came concurrently with an initial public offering of common stock for the Luxembourg-based satellite services provider. The new shares gained 3%.

There was a mix of hedged and outright participation despite the fact that the deal came with an IPO, a syndicate source said.

Theravance Inc.'s sister convertible bonds were active in trade, with the newer Theravance 2.125% convertibles moving higher, while the older Theravance 3% convertibles, which are near their provisional call price trigger, lost premium. Shares of the San Francisco-based biopharmaceutical company surged on news of a favorable regulatory panel vote for its experimental inhaler drug being developed with GlaxoSmithKine to treat chronic lung disease.

Elsewhere, Boston Properties Inc. remained in focus as traders anticipate a potential vol. event ahead of the call date for the 3.75% bonds due 2036. The Boston Properties convertibles were trading near parity.

Meanwhile, RTI International Metals Inc.'s 1.625% convertibles, which have seen a slide in the underlying share price since issue, remained down on an outright basis and steady on a dollar-neutral, or hedged, basis. But at current levels, traders anticipate some outright players might be stepping in to support pricing.

"The RTI stock has been slaughtered since that deal came, and outright guys are looking at it, thinking that the stock was a little over done," a New York-based trader said.

At the end of Thursday, the new RTI deal was seen at 97.5 bid, 98.5 offered versus a share price of $26.67.

Micron Technology Inc. was another name in which outright players were expected to step in.

Equities ended lower for the third day out of four. The Dow Jones industrial average lost 81.45 points, or 0.5%, to 14,537.14, after dropping 138.19 points on Wednesday. The S&P 500 stock index lost 10.40 points, or 0.7%, to end at 1,541.61, after dropping 22.56 points Wednesday, and the Nasdaq stock market lost 38.31 points, or 1.2%, to 3,166.36, after losing nearly 60 points on Wednesday.

Intelsat flat dollar neutral

Intelsat's newly priced 5.75% mandatory convertible preferred shares were seen at $51.25 versus an underlying share price of $19.25 at the end of the session, a syndicate source said. They started at a $50.00 par.

On a dollar-neutral basis, the new paper ended "flattish." But earlier in the session, they were seen to have expanded between 0.5 point to a point, sources said.

"They opened right at par, and ticked down to $49.50. Then they floated around at the par level for about 30 minutes before taking off. They got up to $53 before settling down in the $51.50 area for much of the rest of the day," a syndicate source said.

The new Intelsat shares followed a similar pattern, although they opened down from their IPO price of $18.00 per share. But they traded up through the session, ending higher by 56 cents, or 3%, at $18.56.

The shares priced lower than initial talk, and the perceived attractive valuation in the stock helped the mandatory deal, a source said.

Despite that it came concurrently with an IPO, which generally discourages hedged participation because there's no way to borrow shares that don't exist, there was still hedged interest, a source said. One source quoted the deal at a delta of 80%.

Intelsat priced $150 million of three-year series A mandatory convertible preferred shares to yield 5.75% with an initial conversion premium of 22.5%.

The junior non-voting mandatory preferreds priced concurrently with Intelsat's IPO, which not only priced below initial talk but was also downsized to 19,323,672 shares, from an initially talked 21,739,130 common shares. The share greenshoe of 2,898,550 shares of common stock was downsized from 3,260,869 shares.

Intelsat, which was known as Intelsat Global Holdings SA before the IPO, is a Luxembourg -based fixed satellite services provider.

The mandatories are listed on the New York Stock Exchange.

Goldman Sachs & Co., J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and BofA Merrill Lynch acted as joint bookrunning managers. Barclays, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Nomura Securities International, Inc. and UBS Securities LLC were bookrunners.

Evercore Group LLC, HSBC Securities (USA) Inc., RBC Capital Markets, LLC, LionTree Advisors LLC and Raymond James & Associates, Inc. were the co-managers for the offerings.

Theravance trades mixed

Theravance's 2.125% convertibles due 2023 traded up to about 140 versus the underlying share price of $32.56. That was up a couple of points outright.

The Theravance 3% convertibles due 2015 traded to about 133 versus the same $32.56 closing share price. That was down a couple of points outright.

Theravance shares surged $4.55, or 16%, on the day.

Theravance popped on a positive recommendation from a respiratory panel of the Food and Drug Administration on the company's chronic respiratory disease drug Breo Ellipta, a once-daily treatment taken as a dry inhalable power through a device known as Ellipta. The panel voted 9-4 in favor of recommending approval, noting that it demonstrated effectiveness in reducing COPD exacerbations and treading airflow obstruction.

The Theravance 3% bond is provisionally callable and getting close to its soft call trigger.

Because of that, much of the premium is being taken out of the bond in case the company decides to soft call, a convertibles analyst said.

If the company calls them, they could issue another convertible, taking advantage of the higher share pricing, but it may not be the end of calling them, the analyst said.

"They'd have to trade north of $33, and they would have to trade that way for 20 out of 30 days; they are not immediately callable," the analyst said.

Both bonds "performed as you'd expect," the analyst said.

Boston Properties in focus

Boston Properties' called 3.75% convertibles traded at 108.625, which was down 0.44 point on Thursday, according to Trace data.

The issue has been pretty actively traded at a "shade over parity," a New York-based trader said.

The bonds are trading on a full delta, and traders are looking at the potential for stock volatility with the Boston-based real estate investment trust's upcoming quarterly earnings report.

"It looks like a pretty good call option," he said, adding that at the end of Thursday the paper was "slightly over a nickel above parity."

"You've got a little bit of carry and vol. in the stock coming in the short run," the trader said.

Mentioned in this article:

Boston Properties Inc. NYSE: BXP

Intelsat SA NYSE: I

RTI International Metals Inc. NYSE: RTI

Theravance Inc. Nasdaq: THRX

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