Three deals on tap; Acorda looks slightly cheap; Restoration Hardware looks slightly rich

By Rebecca Melvin

New York, June 17 – Market players sized up three new deals in the U.S. convertibles market on Tuesday, of which two were expected to price after the market close Tuesday and one was expected to price after the market close Wednesday.

All three deals – which altogether amount to about $900 million in proceeds, including over-allotment options – were being well received, sources said.

“They are in three different sectors, so they are very different, but they are all pretty reasonably priced, so they should all do well, at least initially,” an East Coast-based buysider said.

Pricing late Tuesday, Acorda Therapeutics Inc.’s $300 million of seven-year convertible senior notes were viewed as slightly cheap at the midpoint of talk, which was for a 1.75% to 2.25% coupon and 27.5% to 32.5% premium. Acorda shares got hammered during the session, ending down 9%.

Also pricing Tuesday, EZCorp Inc.’s $175 million offering of five-year convertible notes was also viewed as cheap at a talked 2.25% to 2.75% coupon and 30% to 35% premium.

The EZCorp deal was seen at par bid in the gray market but was expected to do better than that upon release for secondary dealings.

Pricing late Wednesday, Restoration Hardware Holdings Inc.’s $300 million deal of five-year convertible senior notes was also turning heads, but it was viewed as slightly rich, using a 325 bps credit spread and 35% vol., which got the deal worth 99.2 at the midpoint of 0% to 0.5% coupon talk and 30% to 35% premium talk, according to a Connecticut-based trader.

Restoration Hardware was expected to perform well, nevertheless. “I think it’s going to have good liquidity, and it’s a name that guys are going to have to own,” a New York-based trader said.

A syndicate source was not forthcoming about why Restoration Hardware, which was launched late Monday, was being marketed over two days instead of adhering to the typical one-day marketing rule of thumb.

“There are always exceptions,” the syndicate source said.

Back in established issues, paper was “better for sale,” meaning more sellers than buyers, a New York-based trader said, estimating that the convert universe had slipped about 0.25 point on the day.

“The tone feels just slightly better for sale; guys seem to be opportunistically lightening up.” he said.

SanDisk Corp.’s convertibles were trading actively on the heels of the Milpitas, Calif.-based data storage company’s news on Monday that it plans to acquire Fusion IO for about $1.1 billion.

In addition, Sterne Agee raised its price target on SanDisk shares to $125.00 from $105.00 and reiterated a “buy” rating on them.

Intel Corp. was also still heavily traded.

SanDisk and Intel were among names that weakened by 0.5 point to a point last week amid heavy new issue supply. The SanDisk paper had traded actively but in line on Monday, and the same trend appeared to be in place on Tuesday, sources said.

Other names that weakened amid the flood of new supply last week were Tesla Motors Inc., Workday Inc. and Priceline Group Inc., a buysider said.

“It was generally the richest, outright names” that slipped, the buysider said.

Meanwhile, “things have stabilized” this week, he said, and that should continue unless there is another flood of supply. But he also pointed out that “close to $1 billion of new issuance” is on tap so far this week in addition to deals being launched and priced in Europe.

“People don’t like it when things are getting marked down,” he said.

Equities edged up again. The Dow Jones industrial average added 27.48 points, or 0.2%, to 16,808.49, the S&P 500 stock index gained 4.21 points, or 0.2%, to 1,941.99, and the Nasdaq stock market added 16.13 points, or 0.44%, to 4,337.23.

Acorda, EZCorp on tap

Acorda shares fell $3.16, or 9%, to $32.12 during the session before the Ardsley, N.Y.-based biopharmaceutical company was expected to price $300 million seven-year convertibles.

The Acorda deal was viewed as slightly cheap at the midpoint of talk, using a 500 bps credit spread and 35% volatility. That got the deal worth 100.6, according to a Connecticut-based trader.

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

Proceeds are expected to be used for general corporate purposes, including to fund possible acquisitions of, or investments in, complementary businesses, products and technologies. Acorda has not entered into any agreements or commitments regarding any acquisitions or investments at this time.

The EZCorp $175 million was a swap deal in which initial buyers of the bonds would have a short position in the underlying shares going into the deal. These short positions would be arranged by the bookrunners in what is called “a happy meal.”

The EZCorp deal would do the best on swap over time, a buysider said.

EZCorp is an Austin, Texas-based operator of pawn stores and short-term consumer loan stores. It launched an offering of $175 million of five-year convertible notes under Rule 144A, and the deal is coming with a call spread.

EZCorp shares fell 53 cents, or 4.3%, to $11.90 during the session.

Mentioned in this article:

Acorda Therapeutics Inc. Nasdaq: ACOR

EZCorp Inc. Nasdaq: EZPW

Intel Corp. Nasdaq: INTC

Restoration Hardware Holdings Inc. NYSE: RH

SanDisk Corp. Nasdaq: SNDK

Tesla Motors Inc. Nasdaq: TSLA

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