Benefitfocus convertibles hit the market, trade up; Illumina expands; Jazz contracts

By Abigail W. Adams

Portland, Me., Dec. 21 – Friday opened with a surprise new deal hitting the convertibles secondary space.

Benefitfocus Inc. priced $200 million of five-year convertible notes after the market close on Thursday. The notes were active and expanding on debut, sources said.

Outside of the new paper, short-duration notes continued to improve while credit sensitive names continued to weaken.

The energy sector remained under pressure as the crude oil futures slid further below the $50 threshold.

Weatherford International Ltd.’s 5.875% convertible notes due 2021 and Nabors Industries Inc.’s 0.75% convertible notes due 2024 continued to trend downwards.

The notes have shaved off 20 to 30 points in value since the sell-off in crude oil began in October.

Illumina Inc.’s 0.5% convertible notes due 2021 continued to see high-volume activity in the secondary space with the notes expanding dollar-neutral.

However, Jazz Pharmaceuticals plc’s 1.5% convertible bonds due 2024 saw a large dollar-neutral contraction as stock dropped on company news.

The space remained weak with many licking their wounds after what has been a brutal quarter, sources said.

Benefitfocus expands

Benefitfocus priced $200 million five-year convertible notes after the market close on Thursday at par at the cheap end of talk with a coupon of 1.25% and an initial conversion premium of 30%.

Price talk was for a coupon of 0.75% to 1.25% and an initial conversion premium of 30% to 35%.

The new paper was in focus in the secondary space and was trading in a wide range, a market source said.

The notes were changing hands between par and 102 on an outright basis early in the session.

The 1.25% notes were moving either in line, contracted by 0.25 point or expanded by 0.25 point dollar-neutral.

“They’re all over the place,” a market source said.

However, the notes continued to trade up and were seen changing hands at 102.5 later in the afternoon. The notes were expanded about 0.625 point dollar-neutral.

Benefitfocus stock popped over 3% on Friday. However, the pop came after stock dropped 18% the day before.

Benefitfocus stock closed Friday at $42.32, an increase of 3.47%.

Sources were surprised to see a new deal price given current market conditions with credit spreads continuing to blow out and equity markets volatile.

However, the deal was most likely already done before it launched, a source said.

Energy names eyed

The energy sector continued to suffer losses with several names seeing double digit drops since the sell-off in crude oil futures began in October.

Weatherford International’s 5.875% convertible notes due 2021 dropped to a 64 handle on Friday. The notes were trading in the 95 range in early October.

While not active on Friday, Nabors’ 0.75% convertible notes due 2024 are in the 62 range, a source said. The notes were trading around 80 in early October.

Crude oil futures continued to plummet on Friday settling at $45.59, a decrease of 29 cents or 0.63%.

The barrel price of WTI crude oil has traded below $50 for the majority of the week, a closely watched threshold.

Most energy names were underwritten at $50, sources said.

Illumina expands

Illumina’s 0.5% convertible notes due 2021 saw high volume trading activity on Friday with the notes expanding as stock sank.

The notes traded at 127.375 on an outright basis. They were expanded about 0.5 point dollar-neutral.

Illumina stock traded to a high of $295.00 before closing the day at $278.85, a decrease of 4.59%.

While not active on Friday, Illumina’s 0% convertible notes due June 15, 2019 saw high-volume trading on Thursday with the notes also expanded about 0.5 point.

Illumina’s convertible notes were among the short-duration, high-delta, in-the-money names to improve amid the deteriorating market conditions.

Jazz contracts

Jazz Pharmaceuticals’ 1.5% convertible notes due 2024 saw a large dollar-neutral contraction on Friday as stock hit a new 52-week low in the wake of company news.

The 1.5% convertible notes were seen at 88.75 bid, 89.75 offered in the late afternoon. They were contracted 1 point dollar-neutral, a market source said.

Jazz’s 1.875% convertible notes due 2021 were seen at 95.25 bid, 96 offered and were largely unchanged dollar-neutral.

Jazz stock traded to a high of $127.40 before closing the day at $115.93, a decrease of 11.3% and a new 52-week low.

Jazz announced prior to the market open on Friday that the U.S. Food and Drug Administration pushed back the review of its drug application for solriamfetol for the treatment of excessive daytime sleepiness to March 20.

The Dublin-based pharmaceutical company’s stock was also trading off as Ireland moves forward with increased tax initiatives for multinational companies, a market source said.

Mentioned in this article:

Benefitfocus Inc. Nasdaq: BNFT

Illumina Inc. Nasdaq: ILMN

Jazz Pharmaceuticals plc Nasdaq: JAZZ

Nabors Industries Inc. NYSE: NBR

Weatherford International Ltd. NYSE: WFT

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