OSI comes ‘aggressive’; secondary market seen cheaper; Molina expands on dollar-neutral basis

By Stephanie N. Rotondo

Seattle, Feb. 16 – The convertible bond primary market had yet another new issue to play with on Thursday, OSI Systems Inc.’s $250 million of 1.25% convertible senior notes due 2022.

The deal priced late Wednesday, coming with a 38.5% initial conversion premium.

The terms were in the middle of the 1.125% to 1.625% yield talk and the 35% to 40% premium talk.

The issue was also upsized from $225 million.

One trader remarked that the convertibles were “priced pretty aggressively,” adding that they “did not trade very well after the break.”

Another trader also said he thought the terms were aggressive, adding that the paper was “around par all day.”

And, as the stock was higher on the day, “that tells me that it didn’t do so well on a dollar-neutral basis,” the trader said.

The company’s shares rose 71 cents to $78.30.

BofA Merrill Lynch, Wells Fargo Securities LLC, J.P. Morgan Securities LLC and Jefferies LLC ran the books.

The conversion price is $107.46, equal to 9.3056 shares per each $1,000 of notes.

The notes are callable on or after March 6, 2020, but only if the stock price hits a 130% price hurdle.

Proceeds will be used to repay borrowings under a credit facility, to repurchase $35 million of common stock from buyers of the new convertibles at $77.59 a share and for general corporate purposes.

Looking ahead, one sellside source speculated that the calendar could start to fill up.

“It seems like guys are raising more cash for more deals, so hopefully we’ll se more primary [activity],” he said.

Secondary softens

As for the secondary, sellsiders agreed that there was a weak tone pervading the market.

One trader said that convertibles were “generally a little weaker,” seeing paper 0.125 to 0.25 point cheaper on the day.

For instance, Weatherford International plc’s 5.875% exchangeable notes due 2021 traded just south of 122, according to one market source. That was deemed down 1 to 2 points outright.

The oil and gas company’s stock finished down about 3%.

Another source said Tesla Inc.’s paper was about 0.375 of a point lower on a dollar-neutral basis.

Both the 1.25% convertible notes due 2021 and the 0.25% convertible notes due 2019 traded sub-par during the session. As for the car maker’s equity, it lost $10.81, or 3.86%, to close at $268.95.

PDL BioPharma Inc.’s 2.75% convertible notes due 2021 were also called a touch lower at 88.5. The underlying stock, however, managed to end 2 cents better at $2.31.

Molina earnings disappoint

A trader said Molina Healthcare Inc.’s 1.125% convertible notes due 2020 “expanded at least 1¼ points on a dollar-neutral basis” as the stock took a big hit post-earnings.

On an outright basis, the convertibles were off as much as 20 points, according to another source.

The paper closed the session in a 135 to 135.5 context. The equity meantime declined $10.71, or 17.88%, to $49.18, on well above-average trading.

The Long Beach, Calif.-based managed care company reported its fourth-quarter results Wednesday after the market closed, showing a loss of $91 million, or $1.64 per share.

The company had posted a profit the year before.

On an adjusted basis, earnings per share was 63 cents.

Analysts polled by Zacks Investment Research had expected EPS of 75 cents.

At $4.46 billion, revenue also fell short of expectations of $4.52 billion.

Mentioned in this article:

Molina Healthcare Inc. NYSE: MOH

OSI Systems Inc. Nasdaq: OSIS

PDL BioPharma Inc. Nasdaq: PDLI

Tesla Inc. Nasdaq: TSLA

Weatherford International plc NYSE: WFT

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