Morning Commentary: Smart Global convertible notes expand on debut; Assertio in focus

By Abigail W. Adams

Portland, Me., Feb. 7 – Friday opened with more new paper entering the convertibles secondary space.

In an overnight deal, Smart Global Holdings Inc. priced an upsized $220 million of six-year convertible notes prior to the market open on Friday at par with a coupon of 2.25% and an initial conversion premium of 27.5%.

Pricing came in line with talk for a fixed coupon of 2.25% and a fixed initial conversion premium of 27.5%, according to a market source.

The initial size of the deal was $200 million.

The new paper traded up out of the gate even with stock off more than 10%, a market source said.

The notes traded as high as 102.5 early in Friday’s session with most trades between 101.75 and 102, sources said.

The deal looked to be trading at fair value with the offering modeling about 2 points cheap using a credit spread of 500 bps over Libor and a 42% vol., a market source said.

While the borrow looked decent, the stock was not the most liquid, the source said.

However, the offering was most likely spoken for before it was announced and priced with the anticipated decline in stock taken into consideration.

Smart Global Holdings stock was taking a hit on Friday following news of the convertible notes offering. Stock was down to $27.93, a decrease of 12.31%, shortly before 11 a.m. ET.

Meanwhile, Assertio Therapeutics Inc.’s 2.5% convertible notes due 2021 were in focus on Friday as stock soared following news of an asset sale.

The 2.5% convertible notes jumped almost 20 points outright. They traded up to 98 on Friday after previously trading in the mid-70s, a market source said.

Assertio stock traded as high as $1.71 soon after the opening bell and was changing hands at $1.52, an increase of 46.15%, shortly before 11 a.m. ET.

Assertio, formerly known as Depomed Inc., announced that it was selling its NUCYNTA franchise of pain medication to Collegium Pharmaceutical Inc. for $375 million.

Proceeds will be used to retire outstanding debt, according to the company news release.

The 2.5% notes have about $145 million outstanding, according to Trace data.

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