Morning Commentary: Allegheny Technologies, GlaxoSmithKline exchangeables eyed

By Abigail W. Adams

Portland, Me., June 17 – After a two-day hiatus, the convertibles primary market returned to action with two overnight deals launching prior to the market open.

Allegheny Technologies Inc. plans to price $250 million of five-year convertible notes and GSK Finance No. 3 plc, a subsidiary of GlaxoSmithKline plc, plans to price $300 million of three-year notes (expected A2/A) exchangeable for Theravance Biopharma Inc. stock after the market close on Wednesday.

Allegheny on tap

Allegheny Technologies plans to price $250 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 3% to 3.5% and an initial conversion premium of 40% to 45%.

The deal was heard to be marketed with assumptions of 700 basis points over Libor and a 40% vol., according to a market source.

Using those assumptions, the deal looked about 3.5 points cheap at the midpoint of talk, a source said.

Proceeds will be used, in part, to buy back a portion of the company’s 4.75% convertible notes due 2022.

The 4.75% convertible notes were trading at 140 in February but tanked in the March sell-off. The notes traded as low as 85 as recently as April but have since recovered with the broader market.

The 4.75% notes were changing hands around 102 late last week, according to Trace data.

GSK exchangeable eyed

GSK Finance, a subsidiary of GlaxoSmithKline, plans to price $300 million of three-year notes (expected A2/A) exchangeable for Theravance Biopharma stock after the market close on Wednesday.

Price talk is for a fixed coupon of 0%, a fixed initial conversion premium of 35% and a reoffer price of 106.5 to 108.5.

The deal was being marketed with assumptions of 50 bps over Libor and a 45% vol., according to a market source.

Using those assumptions, the fair value of the deal modeled out to 112.30, a market source said, which was several points cheap to the notes reoffer price.

The bond floor of the exchangeables is 97.73 due to the tight credit spread, a source said.

GSK is the credit backstopping the notes.

The notes will primarily be settled in shares and will be exchangeable into all of the 9,644,807 shares of Theravance currently owned by GSK.

GSK purchased 10 million shares of Theravance at $21.2887 per share in 2012, according to a press release that was issued at the time.

GSK is selling off its stake in Theravance through the exchangeable notes offering, a source said.

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