Western Asset prices cheap; DexCom steals the show as convertibles drop; PTC in focus

By Stephanie N. Rotondo

Seattle, Sept. 28 – Yet another new issue entered the convertible bond market on Thursday, as Western Asset Mortgage Capital Corp. priced $100 million of 6.75% convertible senior notes due 2022.

The deal came with an initial conversion premium of 10%, on the cheap end of price talk. The yield also came at the cheap end of the 6.25% to 6.75% yield talk.

JMP Securities ran the books.

But while the company’s equity was drifting lower in the wake of the new deal the issue wasn’t getting nearly the attention that other recent deals have. Instead, the market seemed to shift its focus to DexCom Inc.’s 0.75% convertible notes due 2022, which were seen dropping about 13 points on the day.

The underlying equity was meantime down over 32%.

The debt’s decline was attributed to the approval of a competing blood sugar detection device.

Also in the health care space, a trader noted that trading in PTC Therapeutics Inc.’s stock had been halted “all day,” as the company waited for the Food and Drug Administration to issue its report on its experimental drug aimed at treating Duchenne muscular dystrophy.

As such, he said there had been no trading in the company’s 3% convertible notes due 2022 either.

“If it’s taking that long [for the FDA] to come up with language, it isn’t going to be good,” the trader commented.

PTC’s convertibles were trading in the mid-70s for the last couple of sessions, according to Trace data. That compared to levels around 80 at the start of the week.

The underlying stock ended Wednesday’s session at $17.46.

At day’s end, the FDA said that the drug might be effective but that more work needed to be done to prove it.

An advisory panel voted 10-1 that the results of PTC’s study were inconclusive, pushing out potential approval of the drug even further.

Elsewhere, Ensco plc’s 3% convertible notes due 2024 were on the active side, and better, according to a trader.

“People like the credit,” he said. “They’ve been going up for awhile.”

Western Asset eyed

Western Asset Mortgage sold $100 million of five-year convertibles on Thursday.

The issue carries an initial conversion premium of 10%.

But as the issue was the company’s first convertible debt offering – as well as its first debt offering in general – a trader said there had been minimal trading in the name.

The trader also speculated that the lack of a “well known” bookrunner was also keeping investors at bay.

He did see paper trading at par early in the session.

As for the company’s stock, it declined 12 cents, or 1.10%, to $10.81.

The notes are contingently convertible prior to July 1, 2022.

The initial conversion rate is 83.1947 shares per each $1,000 of notes, equal to an initial conversion price of $12.02 a share.

The company can redeem the issue on or after July 1, 2022.

Proceeds will be used to acquire agency CMBS, residential whole and bridge loans, mezzanine commercial loans and non-agency RMBS representing interests in pools of reperforming loans.

While Western Asset’s new issue wasn’t getting that much attention, IAC/InterActiveCorp.’s $450 million of 0.875% exchangeable senior notes due 2022 – a deal that priced ahead of Wednesday’s open – remained in play.

A trader called the issue “pretty much unchanged” around 104.

IAC’s stock firmed 41 cents to $117.64.

DexCom dives

DexCom’s 0.75% convertibles took a beating on Thursday following the FDA’s approval of a competitor’s blood sugar detection device.

A trader pegged the paper around 86.

Another market source saw the issue trading mostly in an 86.25 to 86.5 context, though there were some late-day trades with an 87 handle.

The source noted that the paper was in the 99 area on Wednesday.

DexCom’s equity also got hammered, falling $22.03, or 32.65%, to $45.44.

On Thursday, the FDA said it had approved a device created by Abbott that detects blood sugar levels without a finger-prick. The device instead uses a sensor that sticks to the body.

DexCom is reportedly working on a similar device, but it is not expected to enter the market until sometime in 2018.

Ensco ends up

Ensco’s 3% convertibles were moving up on Thursday.

One trader deemed the debt up 1.5 points at 84.5 bid, 84.875 offered.

A second source placed the issue around 85.375, though he noted that most trades during the session occurred with an 84 handle.

Ensco’s shares, however, were steady at $5.87.

Ensco is acquiring Atwood Oceanics Inc. On Thursday, the company said it had gotten lender approval to extend the maturity of its revolving credit facility until 2022.

The extension will give the company more liquidity and flexibility as it goes through the acquisition process.

The amendment is contingent upon the Atwood acquisition closing successfully.

Mentioned in this article:

DexCom Inc. Nasdaq: DXCM

Ensco plc NYSE: ESV

IAC/InterActiveCorp. Nasdaq: IAC

PTC Therapeutics Inc. Nasdaq: PTCT

Western Asset Mortgage Capital Corp. NYSE: WMC

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