Barclays synthetic on deck; BofA downsizes; Elanco equity units expand; Teradyne active

By Abigail W. Adams

Portland, Me., Jan. 23 – Thursday opened with the first new paper of the week entering the convertible secondary space.

Elanco Animal Health Inc. priced $550 million, or 11 million units, of three-year par of $50 tangible equity units and BofA Finance LLC priced a downsized $300 million offering of 2.6-year cash-settled notes tied to Charter Communications Inc. after the market close on Wednesday.

Elanco’s equity units were in demand and saw a large dollar-neutral expansion in heavy volume activity.

However, BofA Finance’s synthetic paper was flat in the aftermarket.

The primary market has priced several cash-settled equity-linked notes recently, and one more is on deck for after the market close.

Barclays Bank plc plans to price $250 million five-year cash-settled equity-linked notes tied to Microsoft Corp.

While many were lukewarm about the synthetic offerings, the investment-grade paper was largely being marketed to European accounts, sources said.

While secondary market activity was largely focused on Elanco’s new offering, Teradyne Inc.’s 1.25% convertible notes due 2023 were active following a fourth-quarter earnings beat and news of a share buyback.

Elanco expands

Elanco Animal Health’s tangible equity units dominated activity in the secondary space with the units seeing a large dollar-neutral expansion.

Elanco priced $550 million, or 11 million units, of three-year par of $50 tangible equity units after the market close on Wednesday at par to yield 5% with a threshold appreciation premium of 20%.

Pricing came in line with talk for a fixed dividend of 5% and a fixed threshold appreciation premium of 20%, according to a market source.

The units priced concurrently with an upsized common stock offering of 22,694,732 shares, which priced at $32.00 a share.

The units were active in the secondary space and saw a large dollar-neutral expansion.

The notes were quoted at $54.5 bid, $55 offered versus a stock price of $32.25 soon after the opening bell.

They were changing hands at $55.50 in the mid-afternoon.

The units were expanded almost 5.5 points dollar-neutral heading into the market close, a market source said.

They dominated activity in the secondary space with almost 5 million units changing hands by the late afternoon.

Elanco stock closed Thursday at $32.25, an increase of 0.06%.

The synthetics

BofA Finance priced a downsized $300 million offering of 2.6-year cash-settled notes tied to Charter Communications after the market close on Wednesday with a reoffer price of 103.25, a coupon of 0.125% an initial conversion premium of 22.5%, according to a market source.

Pricing came wider than talk for a reoffer price of 104 and at the cheap end of talk for a coupon of 0% to 0.125% and an initial conversion premium of 22.5% to 25%, according to market sources.

The initial size of the deal was $500 million.

Sources were less than enthusiastic about the synthetic offering, which offered little upside potential.

However, the notes were investment grade and may have appealed to portfolios looking to limit their downside exposure to Charter stock.

The 0.125% cash-settled notes were seen changing hands in the secondary at 103.25, flat to their issue price.

The synthetic from BofA was one of several that have recently come to the market with one more on deck for after the market close.

Barclays Bank plans to sell $250 million five-year cash-settled equity-linked notes tied to Microsoft after the market close with price talk for a fixed coupon of 0%, a fixed conversion premium of 20% and a reoffer price of 104 to 104.5, a market source said.

The notes were being marketed with assumptions of 65 bps over Libor and a 25% vol.

Using those assumptions, the fair value of the notes was about 102.84 with a coupon of 0% and a premium of 20%, according to a market source.

The books on the offering were heard to have closed by the mid-afternoon, indicating solid demand.

Prior to Barclays’ and BofA’s cash-settled equity-linked notes, J.P. Morgan Chase Bank, NA priced $500 million three-year cash-settled bonds exchangeable for Alibaba Group Holding Ltd. shares with a reoffer price of 109.5, a coupon of 0.125% and a premium of 20% on Jan. 9.

The recent synthetic deals were predominately being marketed to European accounts, which need investment-grade paper, sources said.

Teradyne active

Teradyne’s 1.25% convertible notes due 2023 saw high-volume activity on Thursday following a large fourth-quarter earnings beat and news of a new share buyback program.

The 1.25% convertible notes, which are deep-in-the-money, jumped more than 10 points outright.

They traded as high as 254 but came in alongside stock and stood poised to close the day at 244.

Teradyne stock traded as high as $81.57 and as low as $74.95 before closing the day at $76.21, an increase of 3.56%.

Teradyne’s stock jumped after the company announced a top and bottom line earnings beat and upbeat forward guidance.

The maker of automatic test equipment for semiconductors reported fourth-quarter earnings per share of 88 cents versus analyst expectations for earnings of 79 cents.

Revenue was $654.7 million versus analyst expectations for revenue of $611.7 million.

Teradyne also gave upbeat forward guidance with expected first-quarter earnings of 86 cents to 96 cents per share.

In addition to a large earnings beat, the company announced a new stock buyback program of up to $1 billion shares with a minimum of $250 million to be bought in 2020.

Mentioned in this article:

Charter Communications Inc. Nasdaq: CHTR

Elanco Animal Health Inc. NYSE: ELAN

Microsoft Corp. Nasdaq: MSFT

Teradyne Inc. Nasdaq: TER

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.