Western Digital to price $1 billion; Alder richens deal; convert market ‘trying to absorb’ new paper

By Abigail W. Adams

Portland, Me., Jan. 29 – The convertibles secondary market was relatively quiet Monday, as the new paper that entered the space last week finds its home.

“The market’s trying to absorb last week’s supply, knowing that a couple more deals will be coming this week,” a market source said. And the deals will be coming.

Western Digital Corp. plans to price $1 billion in six-year convertible notes after the market close Tuesday. Price talk is for a coupon of 1% to 1.5% and an initial conversion premium of 40% to 45%, according to a market source.

Bank of America Merrill Lynch and J.P. Morgan Securities are acting as lead bookrunners for the Rule 144A deal, which carries a greenshoe of $100 million.

Western Digital expects to repurchase up to $500 million of company shares concurrent to the pricing of the convertible notes, according to a company release.

JPMorgan Chase Financial Co. LLC also plans to price an offering of five-year cash-settled convertible notes linked to the common stock of Voya Financial, Inc. after the market close Tuesday.

Price talk is for a coupon of 0% to 0.5% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

While smaller, Alder BioPharmaceuticals Inc. will be the first new deal to price this week. The Bothell, Wash.-based pharmaceutical development company, which is focused on migraines, plans to price $200 million of seven-year convertible notes after the market close on Monday.

The deal is expected to do well and there has been heavy demand during the subscription process.

Price talk was revised midday with talk for the initial conversion premium increased to 30% to 35% from the initial 27.5% to 32.5%, according to a market source.

While new deals are in the works, the performance and impact of last week’s deals in the secondary market was mixed. Senseonics Holdings Inc.’s recently priced 5.25% convertible notes due 2023 saw scant trading action.

“This was a special situation kind of convert,” a market source said. “It was tightly placed.”

After dipping below par early in Monday’s session, Insmed Inc.’s recently priced 1.75% convertible notes due 2025 broke par in scattered trading later in the afternoon.

Small-cap biotechnology companies are a leading sector bringing new deals to the market; however, they are not the only ones. The oil and gas sector also brought new deals forward last week.

Oil States International Inc.’s recently priced 1.5% convertible notes due 2023 continued to perform well their second day on the market. The notes were trading in the 102.5 to 103 range during Monday’s session, a market source said.

Teekay Corp.’s 5% convertible notes due 2023 saw increased interest from buyers on Monday and were trading in the 98.5 to 99.25 range, according to a market source.

Alder richens

Alder BioPharmaceuticals richened its price talk in the bookbuilding process. Price talk for the $200 million dollar deal was initially for a coupon of 2.5% to 3% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

Price talk for an initial conversion premium had been increased to 30% to 35% with talk for a coupon settling on 2.5%, according to a market source.

Goldman Sachs & Co., Wells Fargo Securities LLC and Leerink Partners LLC are the joint bookrunners for the registered offering, which carries a greenshoe of $30 million.

There is a contingent conversion on the notes until Nov. 1, 2024. The notes are non-callable until Feb. 1, 2022 then callable subject to a 130% hurdle. There is no make-whole on the soft call, which one market source saw as a drawback to the deal.

As the bookbuilding process for Alder BioPharmaceuticals progressed, the biotech company’s stock tanked. Alder BioPharmaceuticals stock closed Monday at $15, a decrease of 10.18%.

Proceeds from the deal will be used to support the development and commercialization of the migraine drug eptinezumab.

Alder BioPharmaceuticals settled a patent dispute with Teva Pharmaceuticals over eptinezumab earlier in January.

Alder BioPharmaceuticals agreed to pay Teva an immediate payment of $25 million, and a one-time payment of $25 million once eptinezumab received FDA approval. Once launched, Alder BioPharmaceuticals will pay Teva $75 million at each of the sales milestones of $1 billion and $2 billion.

Last week’s biotech deals

Senseonics small overnight pricing of its 5.25% convertible notes drew little attention from the secondary market with only 500 bonds from the $50 million deal seen changing hands, according to a market source.

Senseonics priced before market open Jan. 26, the final deal in a busy week for the primary market.

Insmed’s recently priced 1.75% convertible notes due 2025 dipped below par early in Monday’s session, but regained its footing on an outright basis later in the afternoon.

The notes traded at 99.7 versus an equity price of $28.11, an increase of 1.28%, early Monday.

The notes climbed back above par to end the day at 100.169, according to Trace data. Insmed stock closed Monday at $28.03, an increase of 0.97%.

The notes had been wrapped around 101 last week.

Oil and gas

Oil States new 1.5% notes stayed strong their second full day on the market. They were trading in the 102.5 to 103 range during Monday’s session with not too much changed from Friday, according to a market source.

Oil States’ stock was down Monday, closing the day at $32.25, a decrease of 1.07%.

The 1.5% notes made their market debut Friday. The new paper was well liked by investors, although some felt the credit spread was too tight to become involved.

Teekay Corp.’s 5% convertible notes were trading below par on Monday although more buyers were becoming involved, according to a market source. The notes were in the 98.5 to 99.25 range during Monday’s session.

Teekay stock closed Monday at $8.64, a decrease of 1.26%. Teekay priced $125 million in five-year convertible notes on Jan. 24. The notes were wrapped around 101 their first days in the market.

Mentioned in this article:

Alder Biopharmaceuticals, Inc. Nasdaq: ALDR

Insmed Inc. Nasdaq: INSM

Oil States International Inc. NYSE: OIS

Senseonics Holdings Inc. AMEX: SENS

Voya Financial, Inc. NYSE: VOYA

Teekay Corp. NYSE: TK

Western Digital Corporation Nasdaq: WDC

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