Iconix convertibles jump on exchange; Western Digital improves; Endeavour above par

By Abigail W. Adams

Portland, Me., Feb. 12 – Iconix Brand Group Inc.’s struggling 1.5% convertible notes due 2018 jumped more than 20 points in active trading on Monday after the company announced a privately negotiated exchange agreement.

The notes reached as high as 98 after trading predominately in the 75 to 80 range since November when the New York-based owner, licenser and marketer of consumer brands amended the terms of its credit agreement to prevent default on its 1.5% convertible notes.

With the exchange agreement, there appears to be little fear of a default now, a market source said. “The market was too skeptical of Iconix,” the source said.

While the majority of deals that priced over the past few weeks are now languishing below par, Western Digital Corp.’s 1.5% convertible notes due 2024 continue to hold above par and showed signs of improvement in active trading during Monday’s session.

Endeavour Mining Corp.’s 3% convertible notes due 2023 also gained strength on Monday and returned to the 100 to 101 range in scattered trades after trading at 99.25 on Friday, according to Trace data.

Recent deals such as Teekay Corp.’s 5% convertible notes due 2023, Exact Sciences Corp.’s 1% convertible notes due 2025, and JPMorgan Chase Financial Co. LLC’s 0.25% cash-settled convertible notes due 2023 tied to Voya Financial Inc. stock, in contrast, continued to trade well below their issue price.

Iconix’s exchange

Iconix’s 1.5% convertible notes set to mature on March 15 received a boost on Monday after the company announced a privately negotiated exchange agreement with holders of $110 million of the notes.

The notes reached as high as 98 in active trading Monday with the fear of default that sent the notes tumbling in November all but gone.

The exchange is “an example of a distressed company using convertible to effect a rescue and avoid bankruptcy,” a market source said.

Iconix will exchange $110 million of the 1.5% convertible notes for new convertible notes due August 2023 that will bear a coupon of 5.75% and an initial conversion premium of 17.5%.

The stock reference price will be determined over a five-day averaging period beginning Feb. 12, provided the price per share is no more than $1.656 or less than $0.844.

There is a 32.5% collar around the Feb. 9 closing price of $1.25, according to an 8-K filing with the Securities and Exchange Commission.

While the coupon is an enormous increase, interest will be paid in cash, shares, or a combination of both at the company’s option.

The low conversion premium also creates “significant dilution” for common stock, “but bankruptcy might have meant zero,” for common stock holders, a market source said.

The exchange agreement meets the terms of the company’s second delayed-draw term loan under its senior credit facility. Iconix plans to access additional funds from the term loan to retire the remaining outstanding amount of the 1.5% convertible notes at maturity.

Prior to the exchange, there were $348.3 million of the notes outstanding, according to Trace data.

The 1.5% convertible notes tanked in November after the New York-based owner, licenser and marketer of consumer brands amended the terms of its credit agreement to prevent default on its 1.5% convertible notes.

After the loss of several of its retail licensing agreements, including the DanskinNow brand license agreement with Wal-Mart, Iconix forecast that it would not be able to meet its 2018 debt obligations and amended its credit agreement to prevent non-compliance.

Prior to the announcement, the notes were in the 98 to 100 range.

Iconix stock also skyrocketed on Monday, closing the day at $1.73, an increase of 38.40%. The 1.5% convertible notes have enjoyed returns that are “exceptionally superior” to the wipeout in the common stock, a source said.

Above par

While the majority of new deals that priced amid the turbulence of the broader markets over the past few weeks have fallen apart, Western Digital’s 1.5% notes due 2024 remained firm and improved on Monday after weakening during Friday’s session.

The 1.5% notes were trading back up to 101 during Monday’s session after briefly dipping to 99 in scattered trades on Friday, according to Trace data. Western Digital stock closed Monday at $82.34, an increase of 2.17%.

The notes continued to dominate trading in the space and with more buyers, a market source said.

Endeavour Mining’s 3% convertible notes due 2023 also regained strength on Monday and returned to the 100 to 101 range after trading at 99.25 on Friday, according to Trace data. Endeavour’s 3% convertible notes hit the market on Jan. 31, the same day as Western Digital’s 1.5% convertible notes.

The 3% notes traded up to 101 on their market debut but have largely traded just above or just under par since. Endeavour stock was up on the Toronto exchange, closing the day at C$23.05, an increase of 4.54%.

Below par

While Western Digital and Endeavour traded above par during Monday’s session, several other recently priced deals continued to trade well below.

Exact Sciences’ 1% convertible notes due 2025 traded to a high of about 95.5 and a low of 91.5 before ending the day north of 93. Exact Sciences stock closed Monday at $47.53, an increase of 3.55%.

Exact Sciences priced $600 million of the 1% convertible notes with an issue price of 98.75 on Jan. 11. The $90 million greenshoe was later fully exercised. The convertible notes were initially well-received in the market and solidified around 102 after their market debut.

However, the 1% notes have struggled since a sell-off on Jan. 17 after a Taiwan-based competitor released positive clinical results for a rival colorectal cancer screening product.

The 1% notes were trading in the 90 to 92 range on Friday, according to Trace data.

While gaining about 2 points on an outright basis on Monday, Teekay’s recently priced 5% convertible notes due 2023 have also solidified well below par. The notes were trading in the 96 to 97 range on Monday after dipping to 94 on Friday.

Teekay stock closed Monday’s session at $7.91, an increase of 4.08%. Teekay priced $125 million of five-year convertible notes on Jan. 24, which were well received on their market debut but sank below par their second day in the market.

The notes continued to trade down as broader equity markets struggled and have waivered between 94 and 97 for much of February.

The setting of the threshold and reference price of JPMorgan’s 0.25% cash-settled convertible notes due 2023 linked to Voya Financial stock did little to improve the notes’ position. The notes were in the 97 to 98.5 range during scattered trades on Monday.

Voya stock closed Monday at $48.07, an increase of 2.47%.

JPMorgan’s 0.25% notes debuted in the market on Jan. 31 alongside new paper from Western Digital and Endeavour Mining.

The cash-settled convertible notes were more of a synthetic than a traditional convertible, and there were several odd features to the deal, market sources said, including the lack of a threshold and reference price until the end of a five-day averaging period.

Since their market debut, the notes have attracted little attention and were either at or just under par when they did trade. The notes dipped to a low of 97 on Friday.

JPMorgan set a threshold price of $67.68198 and a reference price of $51.08074 for the 0.25% notes on Feb. 7.

Mentioned in this article:

Endeavour Mining Corp. Toronto: EDV

Exact Sciences Corp. Nasdaq: EXAS

Iconix Brand Group Inc. Nasdaq: ICON

Teekay Corp. NYSE: TK

Voya Financial Inc. NYSE: VOYA

Western Digital Corp. Nasdaq: WDC

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