New deals in focus; upsized Finisar moves higher in active trade; Amicus slips below par

By Rebecca Melvin

New York, Dec. 16 – Another flurry of issuance hit the convertible bond market on Friday, focusing convertibles players’ attention primarily on new paper.

Finisar Corp.’s newly priced $500 million of convertible senior notes moved up in active trade after the Sunnyvale, Calif.-based optical communications company priced the upsized deal at the cheap end of talked terms.

The new Finisar 0.5% convertibles were quoted at 101.75 bid, 102.125 offered against an underlying share price of $31.50 in the early going. The bonds closed the day at about 101.75, a New York-based trader said. Meanwhile, the Finisar common shares underlying the new bonds, which was upsized from $450 million in size, fell $1.55, or 4.7%, to $31.17.

“The stock underperformed and the bond outperformed,” the trader said, adding that the bond wasn’t being quoted on a swap basis because it launched after the market close on Thursday and priced ahead of the open, so market players were not able to set up the deal on a swap basis against the underlying common shares.

Finisar was the centerpiece of trading, but two other new deals also debuted in Friday’s market.

A new Amicus Therapeutics Inc. deal also debuted but were seen to have contracted by about a point. Meanwhile, NantHealth Inc.’s $100 million of 5.5% five-year convertible senior notes priced with an initial conversion premium to the common shares of 25% and at terms that represented the cheap end of talk. No trades were heard in this new paper, which were not allocated widely and for which stock borrow is tight, a second trader said.

Friday’s busy market was similar to the market Dec. 7 when higher-than-usual volume hit midweek as several new issues debuted, including Zillow Group Inc.’s $400 million offering of 2% convertible senior notes due 2021, Ensco plc’s $750 million of 3% exchangeable senior notes due 2024 and Teradyne Inc.’s $400 million of 1.25% senior convertible notes due 2023.

Both the Zillow and Teradyne issues remain up about 2 points on swap since initial pricing, a trader said, calling the Zillow and Teradyne price points around 104 to 105.

From earlier in the month, Rexnord Corp.’s $350 million of 5.75% series A mandatory convertible preferred stock lost some steam this week. But the $50-par deal, which priced Dec. 2 with an initial conversion premium of 20%, finished the day on Friday up 49 cents, or 1%, at $49.058 on the New York Stock Exchange. Rexnord common shares closed on Friday at $19.06, which was up 2 cents, or 0.1%, on the day.

Although total new issuance for the year remains below the prior year’s tally, with 2016 year to date standing at just over $34 billion, compared to the same period of 2015 when nearly $40 billion priced, market sources said they are optimistic that the latest increase in the rate of issuance will continue into the new year.

“We should have a strong year, starting at about the second week of January,” a trader said.

“The move in rates makes convertibles much more attractive compared to other products,” a trader said. “We expect a flood of issuance throughout the next year. The forward outlook is exciting,” he said.

A second source said it wasn’t clear whether many of these new deals were simply a function of trying to squeeze them in before year-end, but he did concede that the recent rally in stocks and the rise in interest rates are positive for the convertible bond market.

“The move in rates makes convertibles much more appealing,” the trader said.

On Wednesday, the Federal Reserve announced its second interest rate increase since 2006 and signaled a somewhat faster pace of tightening in 2017 than it previously had expected to take.

The committee decided to raise the target range for the Federal Funds rate to 0.5% to 0.75%. “The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a return to 2% inflation,” the FOMC said in its policy statement.

Finisar outperforms

Finisar’s 0.5% convertibles due 2036 closed the session at about 101.75 on its debut, with its common shares closing down 4%.

The new bond, which was upsized to $500 million from $450 million, wasn’t being quoted against the underlying shares however because participants hadn’t had time to hedge the deal ahead of final terms being set.

The new Finisar was the day’s most actively traded issue.

“Finisar will probably get added to the index. It is trading fine, even though it didn’t model great. The pricing was pretty aggressive,” a trader said.

It priced with a 0.5% coupon and 35% premium, which represented the cheap end of talked terms but still represented aggressive pricing from the perspective of issuers.

BofA Merrill Lynch and Goldman Sachs & Co. are joint bookrunners.

The deal has a greenshoe that was upsized to $75 million of additional notes, up from $67.5 million.

The issue is non-callable for five years and then provisionally callable thereafter if shares exceed 130% of the conversion price. The paper is putable at par at years five, 10 and 15 as well as upon a fundamental change.

Proceeds will be used for general corporate purpose, which may include working capital purposes and acquisitions.

Finisar is a Sunnyvale, Calif.-based maker of optical communication components and subsystems.

New Amicus drops a point

Amicus’ newly priced 3% convertibles due 2023 were seen to have contracted about a point, with a print at 99.125, according to Trace market data. The Cranbury, N.J.-based biotechnology company priced $225 million of the senior notes at the midpoint of talk.

Amicus common shares closed up 4 cents, or 0.8%, to $4.84.

Goldman Sachs & Co., J.P. Morgan Securities LLC, BofA Merrill Lynch and Leerink Partners are the bookrunners for the Rule 144A offering. Cowen & Co. is a lead manager.

There is a $25 million over-allotment option.

Conversions will be settled with common stock, cash or a combination, at the company’s option.

The convertibles become provisionally callable after four years if the stock price hits a 130% price hurdle.

Amicus will enter into capped call transactions to reduce the dilution to stock holders caused by the offering.

Proceeds from the deal will be used, in part, to fund the capped call transactions. Additionally, the company plans to use the funds to refinance existing unsecured debt and for general corporate purposes.

Amicus is a Cranbury, N.J.-based biotechnology company focused on rare and orphan diseases.

New NantHealth quiet

NantHealth priced $100 million of five-year convertible senior notes to yield 5.5% with an initial conversion premium of 25%. The Rule 144A and Regulation S deal came at the cheap end of talk for a 5% to 5.5% coupon and an initial conversion premium of 25% to 30%.

It wasn’t seen in trade given that it was not widely allocated, there is a tight stock borrow and the issue itself was fairly small, a trader said.

The underlying shares traded up strongly, however, closing up 63.5 cents, or 6.5%, at $10.345.

JPMorgan and Jefferies LLC are the bookrunners.

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

Entities affiliated with Dr. Patrick Soon-Shiong, NantHealth’s chairman and chief executive officer, have indicated interest in purchasing up to $20 million of the convertibles in a separate private placement.

Proceeds will be used for general corporate purposes, including commercializing new solutions and product extensions and potentially pursuing targeted acquisitions.

NantHealth is a Culver City, Calif.-based company focused on developing and marketing a range of health care solutions.

Mentioned in this article:

Amicus Therapeutics Inc. Nasdaq: FOLD

Ensco plc NYSE: ESV

Finisar Corp. Nasdaq: FNSR

NantHealth Inc. Nasdaq: NH

Rexnord Corp. NYSE: RXN

Zillow Group Inc. Nasdaq: ZG/Nasdaq: Z

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