Morning Commentary: Zogenix convertible notes price, drop below par on secondary debut

By Abigail W. Adams

Portland, Me., Sept. 24 – The convertibles secondary saw new paper enter the space on Thursday.

However, trading activity in the name was relatively light early in the session, a source said.

Zogenix Inc. priced $200 million of seven-year convertible notes after the market close on Wednesday at the cheap end of talk with a coupon of 2.75% and an initial conversion premium of 30%.

Price talk was for a coupon of 2.25% to 2.75% and an initial conversion premium of 30% to 35%, according to a market source.

The new paper struggled in early trading, dropping as low as 98.25 soon after the opening bell.

However, the majority of trades were between 99 and par.

There was about $7 million in reported volume early in the session.

However, the majority of trades were odd lots of 2,000 or 3,000 bonds, the source said.

After dropping more than 17% on Wednesday, Zogenix stock continued to trade off early Thursday.

Stock traded down to $17.69, a decrease of 5.22%, shortly before 11 a.m. ET.

The drop in stock was predictable. “A lot of biotechs get annihilated,” a source said.

Biotech companies are favored by hedge funds, which put pressure on the stock, the source said.

The offering was a wall-crossed deal with a limited audience, sources previously said.

Meanwhile, the secondary space was relatively active early Thursday as equity indexes struggled to find direction.

There was about $86 million on the tape about one hour into the session, a source said.

However, Illumina Inc.’s convertible notes continued to dominate trading activity, accounting for a large fraction of the overall volume.

The 0.5% convertible notes due 2021 were changing hands at 119.375 early Thursday with more than $13 million in reported volume.

The 0% convertible notes due 2023 continued to trade around 104 with more than $5 million in reported volume.

Illumina stock traded down to $269.89, a decrease of 1.2%, shortly before 11 a.m. ET.

Illumina’s convertible notes have been major volume movers since news broke about its intention to buy Grail Inc. last week.

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