Allegheny Technologies, GlaxoSmithKline exchangeables eyed; Jazz, Palo Alto top par

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.

Meanwhile, the secondary space continued to see decent activity with recent issues again dominating the tape.

There was $114 million in reported volume about one hour into the session and $500 million in the late afternoon.

Palo Alto Networks Inc.’s 0.375% convertible notes due 2025 and Jazz Pharmaceuticals plc’s 2% exchangeable notes due 2026 were both improved on Wednesday.

Both issues traded above par on Wednesday after largely struggling below since pricing.

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.

However, the deal was “kind of hairy,” another source said.

Allegheny is a specialty metals company, which is a very cyclical business.

The company has a lot of debt and has had cash flow issues in the past, the 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 “collapsed on the downside,” when volatility hit the markets in March, the source said.

They 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.

There were several prints of the 4.75% notes at 109.5 Wednesday afternoon.

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 cheaper than 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.

While the notes modeled several points cheap, the 0% coupon will limit its audience to convertible arbitrage players and accounts interested in investment-grade paper, a source said.

However, the short-duration of the notes is a plus.

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.

Above par

After largely struggling below par since pricing, Palo Alto’s 0.375% convertible notes due 2025 and Jazz Pharmaceuticals’ 2% exchangeable notes due 2026 both traded above par on Wednesday, sources said.

Palo Alto’s 0.375% notes gained about 0.5 point outright to trade up to par late Wednesday afternoon.

The notes were improved dollar-neutral, a source said.

Palo Alto stock traded to a low of $228.75 and a high of $231.65 before closing the day at $229.24, an increase of 0.24%.

Jazz Pharmaceutical’s 2% exchangeable notes traded as high as 102 early in Wednesday’s session, according to a market source.

However, they came in alongside stock to trade at 100.625 in the late afternoon.

The notes were up about 0.5 point outright. However, they were moving inline dollar-neutral, a market source said.

Jazz stock traded to a low of $109.04 and a high of $113.02 before closing the day at $110.49, a decrease of 0.98%.

The notes broke par on Tuesday as the stock popped following news of FDA approval for Zepzelca to treat adult patients with small cell lung cancer.

Jazz has commercialization rights for Zepzelca in the United States.

Mentioned in this article:

Allegheny Technologies Inc. NYSE: ATI

Jazz Pharmaceuticals plc Nasdaq: JAZZ

Palo Alto Networks Inc. NYSE: PANW

Theravance Biopharma Inc. Nasdaq: TBPH

© 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.