Morning Commentary: Jazz to price $850 million exchangeable; Glaukos offers seven-year paper

By Rebecca Melvin

New York, June 8 – Convertibles players early Monday were sizing up two new deals in the market, which has been remarkably busy in recent weeks.

The deals include an $850 million offering of six-year exchangeable senior notes from Jazz Pharmaceuticals plc and a $200 million deal of seven-year convertible notes from what is believed to be a company new to the space, Glaukos Corp.

“I hadn’t heard of this company before today,” a convertibles market source said.

The ophthalmic medical technology and pharmaceutical company, based in San Clemente, Calif., is offering $200 million of seven-year convertible notes heard to be worth 102.3 at the midpoint of talk, using a credit spread of 850 basis points over Libor and 40% volatility, according to market source.

The notes were being talked at 2.75% yield with an initial conversion premium of 40% at the midpoint of talk, the source said.

JPMorgan is bookrunner of the Rule 144A deal, which carries a greenshoe of $30 million.

The notes are non-callable for four years and then subject to a 130% hurdle.

The proceeds will be used to pay the cost of capped call transactions and for working capital and general corporate purposes.

Jazz, a Dublin, Ireland-based biopharmaceutical company. said that about half of the proceeds of its proposed new issue will be used to repurchase up to $400 million of its existing 1.875% exchangeable notes due 2021. Remaining proceeds are earmarked for general corporate purposes, which may include additional repurchases of the 2021 notes from time to time in privately negotiated transactions.

The 2021 notes were trading in the convertibles market early Monday at 98.625 bid, 99.125 offered but were not that active, a second market source said.

Jazz also has an existing 1.5% exchangeable senior note due 2024.

The new Jazz notes have a $150 million greenshoe and are being sold via JPMorgan, Goldman Sachs and BofA Securities as bookrunners.

Overall, the convertibles market has been “churning out deals,” a source said, adding that the investment-grade and high-yield straight bond asset classes were also notable.

“All of the asset classes year to date are already ahead of where they were for all of last year; it’s pretty amazing,” the source said.

As for the convertible market’s pricing action, the source said that some of the deals have struggled initially in secondary market action. But with the move up in equities, most of the deals have recovered and are doing well with the underlying stocks.

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