Planned AMAG looks cheap; Canadian Solar launches; WebMD slips outright, adds on hedge

By Rebecca Melvin

New York, Feb. 11 - Market players on Tuesday were sizing up the planned AMAG Pharmaceuticals Inc. convertibles ahead of pricing seen being fixed after the market close. The deal was seen to be cheaper than many other recent new issues.

A second deal joined the primary calendar with Canadian Solar Inc.'s launch of $100 million of five-year convertible senior notes early in the session. That deal wasn't valued by as many people, who suggested a very wide credit spread of even greater than the underwriters' 900 basis points over Libor.

Elsewhere, WebMD Health Corp. traded lower on an outright basis with lower shares after the Elmwood, N.J.-based provider of health information preannounced fourth-quarter results that were mixed compared to earlier guidance.

But WebMD Health's 2.25% convertibles held in on a hedged basis or even expanded on a low 20% to 30% delta, according to a Chicago-based trader. Meanwhile, the WebMD 2.5% convertibles looked to trade at about the same level outright as the 2.25% paper. It was down about 2 points outright at 102ish, according to Trace data.

Overall, secondary market action was centered on a lot of higher quality, high-dollar price, low-premium names, the trader said. There wasn't a lot of credit-sensitive paper trading.

Xilinx Inc.'s 3.125% convertible debentures due 2037 traded more actively and a little higher Tuesday, suggesting that traders believe the issuer is going to allow holders to keep the final coupon before converting, even though that question is still open, a New York-based trader said.

The San Jose, Calif.-based programmable chipmaker called the $689.64 million of 3.125% debentures for redemption on Monday.

The Xilinx 3.125% convertibles due 2037, a top volume name in the convertible space, changed hands at 162.8, which was up 2.9 points, according to Trace data.

The newer Xilinx 2.625% convertibles also showed up in trade on Tuesday, changing hands at 164.130, which was up 1.6 points, according to Trace data. Shares were up 3% at the close at $47.96.

"Xilinx was trading like it was the general understanding of the market" that the coupon will be paid out, a trader said. "Some got rid of their [bonds] a little too low."

The Xilinx and trading activity in International Game Technology's 3.25% convertibles due May 1 were referred to as "end of life stuff," or trading associated with the bonds' upcoming maturity.

A big chunk of Gilead Sciences Inc.'s D series convertibles traded, sources noted. The Gilead 1.625% convertibles due 2016 changed hands at 359.678, which was up 6 points on the day, according to Trace data.

Other high-dollar, low-premium convertibles, such as WellPoint Inc. and Tesla Motors Inc., also featured in trade.

"There was a bid tone, and a lot of high beta stuff traded following Janet Yellen's testimony, which points to things continuing to grind higher," a trader said.

"We didn't see a lot of the outright [investors] who had been making noise over the last couple of weeks," he said.

A second source said there was good two-way flow in terms of both outright and hedged participation in secondary market action.

Equities rallied on the heels of testimony by Yellen, the new Federal Reserve chairman. In testimony delivered to the House Financial Services Committee Tuesday, she suggested that ongoing Fed policy will adhere greatly to that set under past chairman Ben Bernanke.

She said the Fed will continue to take measured steps toward reduction of the current bond-buying program if the economy keeps improving; and she believes like Bernanke that the economy is strengthening enough to withstand the pressure of lowered stimulus.

AMAG looks cheap

AMAG Pharmaceuticals' planned $150 million of five-year convertibles was seen very cheap, according to market sources.

Using a credit spread of 600 bps over Libor and a 35% vol., one Connecticut-based trader got the AMAG deal 103.8 at the midpoint of terms. Even at the rich end of terms, which is for a 2.25% coupon and 35% vol., the deal looked 101.8, he said.

A 35% vol. was deemed a little low by some, however. But even at 40% vol. and using a credit spread of 700 bps over Libor, the AMAG deal was seen cheap, a second market source said.

A third source was using a 45% vol. He said real vol. is in the 50% range.

The new deal, which was being sold via J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC, was talked at a 2.25% to 2.75% yield and a 30% to 35% initial conversion premium.

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.

AMAG shares slid $1.16, or 5.5%, to $20.01 on Tuesday after the new deal was launched late Monday.

Canadian Solar on tap

Canadian Solar's planned $100 million of five-year convertible senior notes was seen pricing with a coupon level almost double that of AMAG's at 4.25% to 4.75% and with a lower premium of 25% to 30%.

The credit spread on the deal for the Markham, Ont.-based solar power components producer was estimated at about 1,000 bps over Libor, according to a Connecticut-based convertibles analyst. But the underwriter was going out with 900 bps over Libor. Canadian Solar conducts all of its manufacturing operations in China.

The Rule 144A deal has a $15 million greenshoe and was being priced concurrently with a registered, off-the-shelf offering of 2.6 million common shares of the company. The common stock offering has a greenshoe of 390,000 shares.

Credit Suisse Securities (USA) LLC, JPMorgan and Nomura Securities International, Inc. are joint bookrunners of both the convertible and share offerings.

The senior notes are non-callable for three years and then provisionally callable if shares exceed 130% of the conversion price. There are no puts.

Canadian Solar is a Markham, Ont.-based solar power components producer.

WebMD trade 'uneventful'

WebMD's 2.25% convertibles due 2016 traded at 102.375 with the underlying shares at about $44.50, according to a trader.

The level was flat to lower on an outright basis, but looked to him to be better on a dollar-neutral, or hedged, basis by about 0.5 point, assuming a 20% to 30% delta.

There was also a bid at 100.875, but it wasn't known if a trade occurred there, he said.

WebMD's 2.5% convertibles due 2018 traded at 102.57 during the session, which was down 2.4 points, according to Trace data.

WebMD shares fell $2.38, or 5%, to $44.72.

Pressuring the securities was the company's announcement of preliminary quarterly results that were mixed. The health information services company also said that the outlook for 2014 was for continued growth in the year ahead. But that sales activity during the first five weeks of the year did not reflect year-on-year growth.

The change in sales activity didn't appear to be related to any macro issues in its markets, according to the company's news release, and may be attributable to various factors such as a continued shift in customer budgeting and buying patterns.

"Trading of the 2.25% convertible was uneventful," the trader said, adding that perhaps the reason is that "ownership is very concentrated" in the bonds.

Mentioned in this article:

AMAG Pharmaceuticals Inc. Nasdaq: AMAG

Canadian Solar Inc. Nasdaq: CSIQ

Gilead Sciences Inc. Nasdaq: GILD

International Game Technology NYSE: IGT

Tesla Motors Inc. Nasdaq: TSLA

WebMD Health Corp. Nasdaq: WBMD

WellPoint Inc. NYSE: WLP

Xilinx Inc. Nasdaq: XLNX

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