BioMarin, Lawson start strong; Linear seen as rich; Delta Petroleum lacks borrow; BankUnited plans deal

By Kenneth Lim

Boston, April 18 - New deals kept the convertible market busy on Wednesday with BioMarin Pharmaceutical Inc. improving on strong outright interest despite a drop in its stock.

Lawson Software Inc. also gained right off the block on a combination of attractive pricing and a firm stock.

Linear Technology Corp. failed to attract any bids in the gray market as convertible analysts found its deal rich.

Delta Petroleum Corp. was absent in the gray market amid concerns about a lack of stock to borrow.

BankUnited Financial Corp. launched a $160 million offering of three-year mandatorily convertible equity units that is expected to price Thursday after the market closes.

BioMarin climbs on debut

BioMarin's new 1.875% convertible senior subordinated unsecured note due 2017 rose Wednesday on strong outright interest in the deal.

The convertible was 100.625 against a stock price of $16.40 on Wednesday after it was offered at par. BioMarin stock (Nasdaq: BMRN) slipped 1.5% or 25 cents to close at $16.37.

"It traded around a 33% implied vol, trading dollar neutral," a sellsider said. "It looked OK."

BioMarin priced the upsized $282.5 million offering on Tuesday after the market closed with an initial conversion premium of 22.5%. The deal was talked at a coupon of 1.625% to 2.125% with an initial conversion premium of 17.5% to 22.5%.

The size of the deal was originally $250 million with an over-allotment option for an additional $37.5 million. The greenshoe is now a further $42.375 million.

Merrill Lynch was the bookrunner of the registered offering.

BioMarin, a Novato, Calif.-based biopharmaceutical company, said the proceeds of the deal will be used to fund future business development transactions and general corporate purposes.

"There was a lot of demand for these and I think there was quite a bit of outright interest," a buyside convertible trader said. "They've got a couple of drugs that's going to hit the market and there's a lot of optimism about the company, and the converts were priced pretty cheap."

The trader said some investors may have been concerned about the long structure of the convertible, which is non-callable and has no puts.

"I know some people didn't like that it's a 10-year piece of paper," the trader said. "A lot could happen in 10 years, especially when you're talking about a biotech. But I think even when you consider all of that it still models cheap and the conversion premium and coupon look decent."

Lawson gains in start

Lawson's new 2.5% convertible senior note due 2012 also ran up on its first day of trading after its deal was seen to price attractively and its stock held firm.

The convertible traded at 101 against a stock price of $8.90 on Wednesday. Lawson stock (Nasdaq: LWSN) closed at $8.99, up by 1.01% or 9 cents. The convertible was offered at par.

Lawson priced its $200 million deal on Tuesday after the market closed at an initial conversion premium of 35%. The deal was talked at a coupon of 2.25% to 2.75% and an initial conversion premium of 32.5% to 37.5%.

There is an over-allotment option for a further $40 million.

Lehman Brothers was the bookrunner of the Rule 144A offering.

Lawson, a St. Paul, Minn.-based software developer, said it will use some of the proceeds to fund convertible note hedge and warrant transactions. The warrants have an initial strike premium of 75%. The company will also concurrently buy back 5.4 million shares of its common stock for $47.9 million, or $8.90 apiece. The remaining proceeds will be used for general purposes.

"I think it priced cheap," a buysider said. "The coupon-premium pairing was good...This is the kind of pricing you like to see more often, realistically speaking."

Linear seen as rich

Linear Technology's planned $1.7 billion of 20-year convertible senior notes failed to attract any bids in the gray market on Wednesday as analysts described the deal as rich amid credit concerns.

The notes were offered at about 101.25 in the gray market, but no bids surfaced. Linear stock (Nasdaq: LLTC) soared 12.2% or $3.92 to close at $36.04.

"This confirms what the analysts are saying," a sellside convertible trader said.

The two-tranche offering was expected to price after the market closed. The $1 billion A series was talked at a coupon of 2.75% to 3.25% and an initial conversion premium of 38% to 43%, while the $700 million B series was talked at a coupon of 2.75% to 3.25% with an initial conversion premium of 40% to 45%.

The convertibles were offered at par.

There is no over-allotment option.

Credit Suisse is the bookrunner of the Rule 144A offerings.

Linear Technology, a Milpitas, Calif.-based maker of linear integrated circuits, said it will use the proceeds of the deal to partly fund a planned $3 billion accelerated stock buyback.

"I thought it was rich," said a convertible strategist who used a volatility assumption in the mid-20% region and a credit spread in the 100 basis points to 200 bps over Libor region. "A vol in the high 20s might be pushing it. I heard the underwriters were using a credit spread around 50 bps to 60 bps over Libor, but I'd be wider because it's negative equity."

Linear is buying back stock, which would be good for the common but bad for the bonds, the strategist added.

"If they price it all the way at the cheap end it could still be interesting, but anything other than that will be too rich," the strategist said.

Another convertible analyst thought that a credit spread tighter than 100 bps over Libor will likely be too aggressive. That analyst also modeled the convertibles rich using a volatility in the high 20% region and a credit spread in the high 100 bps over Treasuries range for the short-structured B series and a credit spread in the low 200 bps over Treasuries range for the long-structured A series.

"There's no way it's that tight," the analyst said.

The analyst said the deal may have been marketed on the hopes that demand for the sector would be strong.

"We haven't had a semiconductor convertible in a long time, so maybe there's demand for this type of paper that's driving it," the analyst said.

Delta Petroleum faces borrow drought

Delta Petroleum's planned $100 million of 30-year convertible senior notes also stayed quiet in the gray market on Wednesday with stock borrow seen as a key concern.

The deal was talked at a coupon of 3.25% to 3.75% and an initial conversion premium of 42% to 48%. The notes were offered at par. Delta Petroleum stock (Nasdaq: DPTR) closed at $23.17 on Wednesday, down by 5.62% or $1.38.

There is an over-allotment option for a further $15 million.

JPMorgan, Lehman Brothers and Deutsche Bank are the bookrunners of the registered offering.

There will be a concurrent offering of 6.2 million shares of Delta Petroleum common stock with an over-allotment option for an additional 930,000 shares.

Delta Petroleum, a Denver, Colo.-based oil and gas company, said the proceeds of the stock and convertible deals will be used to reduce outstanding debt under its credit facility, and fund capital expenditures and other general purposes. The company will also redraw some or all of the amounts paid down on its credit facility.

"I'm hearing there's no borrow," a sellsider said. "If you can borrow the stock it may be a little bit cheap, but there's no borrow."

But a convertible trader said the company's concurrent stock offering may provide some liquidity for hedge investors.

"They've got the 6.2 million concurrent stock offering," the trader said. "That will provide stock for the borrow. But we'll see tomorrow if it's enough."

BankUnited launches deal

BankUnited plans to price $160 million of three-year mandatory equity units on Thursday after the market closes, talked at a coupon of 6.25% to 6.75% and an initial conversion premium of 40% to 45%.

The 3.2 million equity units will be offered at $50 apiece.

There is an over-allotment option for a further $24 million, or 480,000 units.

JPMorgan is the bookrunner of the registered offering.

BankUnited, a Coral Gables, Fla.-based bank, said the proceeds of the deal will be used to buy back its Class A common stock and to fund general corporate purposes.

BankUnited stock (Nasdaq: BKUNA) eased 0.78% or 18 cents to $22.98 in after-hours trading following the announcement of the deal.

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