The Week That Was... In Convertibles.
August 05/ Kathy Schick
Not only did we get some new issues this week, we got a couple that were billion-dollar-plus deals. First up on Tuesday was Dish Networks (DISH). The company issued an upsized $2.5 billion (plus a $500 million shoe) of ten-year senior convertible notes that priced at 3.375% up 32.5%, the mid-point of price talk. DISH is the number four pay-tv service provider in the US with offerings under the DISH and Sling brands and offers broadband services under the DishNet brand. The convertible bonds received a HOCS slash line of 55 Overall / 62 Growth / 41 Safety. That is quite a ho-hum score for a new issue. The safety score is being dragged down by the company’s relatively high leverage and the lack of a sufficient equity cushion with the market capitalization being less than two times the net debt. And it is important to know, the convertible bonds reside at the parent company making them structurally subordinated to all the other debt, which resides in the operating subsidiary.
Yeah, yeah, yeah, we hear you saying. We recognize that DISH is a known name in the convertible markets over the past two decades and that the deal’s optics were appealing. Most of all, we recognize that the market has been starving for not just deals but big deals. Accordingly, the deal has performed well, trading up to 105 ¾ with the stock at 52 as we go to press. The move above par is about two-thirds from delta (given the 10-year tenor) and one-third from richening.
Also on Tuesday, NextEra Energy (NEE), a clean energy company, offered $1.5 billion of equity units. The units came with a coupon of 6.123% up 25% and will mature in three years. The proceeds from the deal will be used to finance the potential acquisition of Energy Future Holdings Corp, to fund energy and power projects, and other general corporate purposes. NextEra’s newest mandatory was reoffered at 48.875 (a 2.5% discount) to clear the market but traded well afterwards, expanding to roughly the nominal initial pricing.
On Wednesday, Rayonier Advanced Materials (RYAM), a producer of cellulose specialty products, announced an offering of $150 million of mandatory convertible preferred stock with a coupon of 8%. Proceeds will be used for general corporate purposes
And for completeness, we’ll mention that Inotek Pharmaceuticals Corp (ITEK) announced a five-year $50 million senior convertible notes deal on Monday. ITEK is a development-stage biotech focused on glaucoma and other eye diseases. The convertible bonds priced at 5.75% up 20%. The proceeds from the deal will be used to fund drug trials and for general corporate purposes.
We are still in the thick of it with earnings. On Monday, BroadSoft (BSFT) announced earnings that beat the EPS and revenue consensus estimates. In spite of the beat, the stock was down about 5% on weak third quarter guidance. Interactive Intelligence Group (ININ) also reported results that beat both the top and bottom line estimates. In its case, the stock was up 11%. Integrated Device Technology (IDTI) beat the revenue estimate and reported in-line EPS. The stock was down 15% on weak guidance and news of lost Huawei business.
On Tuesday, Endologix (ELGX) reported results that exceed the revenue and EPS consensus estimates. News that the company’s Nellix system for treating infrarenal abdominal aortic aneurysm was being delayed, as the FDA has requested more data, pushed the shares down 12%. Others beating both the top and bottom line include Electronic Arts (EA), EnerNOC (ENOC), and PROS Holdings (PRO). InterDigital (IDCC) reported results that beat the EPS estimate but missed on revenues, as did Wright Medical Group (WMGI). Cobalt International Energy (CIE) reported a wider loss than expected and missed on the revenue line by a considerable amount causing the stock to fall more than 23%. Macquarie Infrastructure Corp (MIC) missed on both the top and bottom line.
On Wednesday, Insulet (PODD) announced results that beat both the revenue and EPS estimates. The stock soared 18% on the news. Exelixis (EXEL) stock was also up nearly 18% as the company exceeded the revenue forecast as sales of cabometyx, its treatment for advanced renal cell carcinoma, have begun to ramp. On the bottom line the company reported a smaller loss than expected. Others beating both estimates include Ares Capital (ARCC), Avid Technology (AVID), CSG Systems (CSGS), j2 Global (JCOM), Meritor (MTOR), and HOCS 20 member Herbalife (HLF).
Depomed (DEPO) reported results that missed on the top line but beat on the bottom. Griffon Corp (GFF) missed on the top line and reported in-line EPS. Tesla Motors (TSLA), a HOCS 20 regular, reported results that missed the revenue and EPS estimates, though the company reaffirmed its guidance to deliver 50,000 vehicles in the second half of the year. The stock was up a bit on the news. Atlas Air Worldwide (AAWW), General Cable Corp (BGC), Chesapeake Energy Corp (CHK), and Hornbeck Offshore Services (HOS) all reported results that missed both the EPS and revenue estimates.
On Thursday, ANI Pharmaceuticals (ANIP), which we discussed in our Hybrid Vigor biotech review on Monday, reported results that exceeded the revenue and EPS estimates sending the stock up nearly 7%. Intercept Pharmaceuticals (ICPT), another name we discussed in the biotech review, reported a smaller than expected loss and while revenue beat, it was off a very small revenue base. The stock was down over 5%. Other companies exceeding both the EPS and revenue estimate include Ugly 20 member Air Lease (AL), Amarin Corp (AMRN), Cornerstone OnDemand (CSOD), GAIN Capital Holdings (GCAP), Iconix Brand Group (ICON), 51job (JOBS), Ligand Pharmaceuticals (LGND), PTC Therapeutics (PTCT), and Repligen Corp (RGEN).
FireEye (FEYE) reported results that exceeded the EPS estimate but missed on revenue. The stock was down 17% as we were writing, which can be attributed to a significant downward revision in full-year revenue guidance. Albany Molecular Research (AMRI), Cenveo (CVO), HSN (HSNI), and Priceline Group (PCLN), with converts on both the Ugly 20 and HOCS 20, also reported EPS that exceeded estimates while revenue missed. Array BioPharma (ARRY), Gogo (GOGO), Orexigen Therapeutics (OREX), Renewable Energy Group (REGI) and Ugly 20 members BioMarin Pharmaceutical (BMRN) and Emergent BioSolutions (EBS) reported results that beat on the top line but missed on the bottom line.
Allscripts Healthcare Solutions (MDRX) missed on the top line and reported in-line EPS. Rounding out Thursday’s reports, Dynegy (DYN), ImmunoGen (IMGN), and Ironwood Pharmaceuticals (IRWD) all missed both the EPS and revenue estimates.
Finally, on Friday, CenterPoint Energy (CNP) and Pattern Energy Group (PEGI) missed both the EPS and revenue consensus estimates. Liberty Media (LMCA) beat the revenue consensus estimate. RAIT Financial Trust (RAS) missed the EPS estimate.
In other news this week, Emergent BioSolutions (EBS) has completed the spin-off of Aptevo Therapeutics (APVO). Aptevo will focus on the ADAPTIR technology. The conversion ratio for the company’s 2.875% of 2021 convertible notes will be adjusted to reflect the spin-off……… As we reported in Monday’s Hybrid Vigor, Ionis Pharmaceuticals (IONS) and Biogen (BIIB) reported positive interim results for a Nusinersen Phase III trial. Nusinersen is a treatment for spinal muscular atrophy. Biogen has exercised its option to develop and commercialize Nusinersen globally, which resulted in a $75 million payment to IONS as a license fee. IONS is eligible to receive up to an additional $150 million in milestone fees and tiered royalties on sales up to a mid-teens percentage. The stock was up 23% for the week………Molina Healthcare (MOH) is acquiring certain Medicare Advantage assets from Aetna and Humana. The acquisition will include 290,000 members in 21 states. MOH will pay cash of $117 million……. Orexigen Therapeutics (OREX) has announced a commercialization and distribution agreement with Laboratorios Farmaceuticos Rovi for Mysimba, its obesity drug, in Spain. Rovi expects to begin marketing the drug by year-end……… Trina Solar (TSL) has entered into an agreement to be taken private. ADS holders will receive $11.60 per share in cash. The total value of the transaction is approximately $1.1 billion and is expected to close in the first quarter of 2017……… Allergan (AGN) has announced the sale of its Anda distribution business to Teva Pharmaceuticals for $500 million. The transaction is expected to close by year-end.
For the upcoming week, we have earnings from MCHP, NVRO, NUAN, ON, PRAA, ENT, ENV, HZNP, IPHI, SINA, SREV, and TVIA on Monday; AMAG, BKD, CAS, CVG, EZPW, KEYW, LGIH, LNG, MWW, MTSC, PARR, PDCE, FSC, HWAY, INCY, IPXL, IONS, JAZZ, SCTY, SPPI, and SPWR on Tuesday; SSRI for Wednesday; and NVDA, RGLD, and VIAV for Thursday.
Enjoy your weekend!
Not only did we get some new issues this week, we got a couple that were billion-dollar-plus deals. First up on Tuesday was Dish Networks (DISH). The company issued an upsized $2.5 billion (plus a $500 million shoe) of ten-year senior convertible notes that priced at 3.375% up 32.5%, the mid-point of price talk. DISH is the number four pay-tv service provider in the US with offerings under the DISH and Sling brands and offers broadband services under the DishNet brand. The convertible bonds received a HOCS slash line of 55 Overall / 62 Growth / 41 Safety. That is quite a ho-hum score for a new issue. The safety score is being dragged down by the company’s relatively high leverage and the lack of a sufficient equity cushion with the market capitalization being less than two times the net debt. And it is important to know, the convertible bonds reside at the parent company making them structurally subordinated to all the other debt, which resides in the operating subsidiary.
Yeah, yeah, yeah, we hear you saying. We recognize that DISH is a known name in the convertible markets over the past two decades and that the deal’s optics were appealing. Most of all, we recognize that the market has been starving for not just deals but big deals. Accordingly, the deal has performed well, trading up to 105 ¾ with the stock at 52 as we go to press. The move above par is about two-thirds from delta (given the 10-year tenor) and one-third from richening.
Also on Tuesday, NextEra Energy (NEE), a clean energy company, offered $1.5 billion of equity units. The units came with a coupon of 6.123% up 25% and will mature in three years. The proceeds from the deal will be used to finance the potential acquisition of Energy Future Holdings Corp, to fund energy and power projects, and other general corporate purposes. NextEra’s newest mandatory was reoffered at 48.875 (a 2.5% discount) to clear the market but traded well afterwards, expanding to roughly the nominal initial pricing.
On Wednesday, Rayonier Advanced Materials (RYAM), a producer of cellulose specialty products, announced an offering of $150 million of mandatory convertible preferred stock with a coupon of 8%. Proceeds will be used for general corporate purposes
And for completeness, we’ll mention that Inotek Pharmaceuticals Corp (ITEK) announced a five-year $50 million senior convertible notes deal on Monday. ITEK is a development-stage biotech focused on glaucoma and other eye diseases. The convertible bonds priced at 5.75% up 20%. The proceeds from the deal will be used to fund drug trials and for general corporate purposes.
We are still in the thick of it with earnings. On Monday, BroadSoft (BSFT) announced earnings that beat the EPS and revenue consensus estimates. In spite of the beat, the stock was down about 5% on weak third quarter guidance. Interactive Intelligence Group (ININ) also reported results that beat both the top and bottom line estimates. In its case, the stock was up 11%. Integrated Device Technology (IDTI) beat the revenue estimate and reported in-line EPS. The stock was down 15% on weak guidance and news of lost Huawei business.
On Tuesday, Endologix (ELGX) reported results that exceed the revenue and EPS consensus estimates. News that the company’s Nellix system for treating infrarenal abdominal aortic aneurysm was being delayed, as the FDA has requested more data, pushed the shares down 12%. Others beating both the top and bottom line include Electronic Arts (EA), EnerNOC (ENOC), and PROS Holdings (PRO). InterDigital (IDCC) reported results that beat the EPS estimate but missed on revenues, as did Wright Medical Group (WMGI). Cobalt International Energy (CIE) reported a wider loss than expected and missed on the revenue line by a considerable amount causing the stock to fall more than 23%. Macquarie Infrastructure Corp (MIC) missed on both the top and bottom line.
On Wednesday, Insulet (PODD) announced results that beat both the revenue and EPS estimates. The stock soared 18% on the news. Exelixis (EXEL) stock was also up nearly 18% as the company exceeded the revenue forecast as sales of cabometyx, its treatment for advanced renal cell carcinoma, have begun to ramp. On the bottom line the company reported a smaller loss than expected. Others beating both estimates include Ares Capital (ARCC), Avid Technology (AVID), CSG Systems (CSGS), j2 Global (JCOM), Meritor (MTOR), and HOCS 20 member Herbalife (HLF).
Depomed (DEPO) reported results that missed on the top line but beat on the bottom. Griffon Corp (GFF) missed on the top line and reported in-line EPS. Tesla Motors (TSLA), a HOCS 20 regular, reported results that missed the revenue and EPS estimates, though the company reaffirmed its guidance to deliver 50,000 vehicles in the second half of the year. The stock was up a bit on the news. Atlas Air Worldwide (AAWW), General Cable Corp (BGC), Chesapeake Energy Corp (CHK), and Hornbeck Offshore Services (HOS) all reported results that missed both the EPS and revenue estimates.
On Thursday, ANI Pharmaceuticals (ANIP), which we discussed in our Hybrid Vigor biotech review on Monday, reported results that exceeded the revenue and EPS estimates sending the stock up nearly 7%. Intercept Pharmaceuticals (ICPT), another name we discussed in the biotech review, reported a smaller than expected loss and while revenue beat, it was off a very small revenue base. The stock was down over 5%. Other companies exceeding both the EPS and revenue estimate include Ugly 20 member Air Lease (AL), Amarin Corp (AMRN), Cornerstone OnDemand (CSOD), GAIN Capital Holdings (GCAP), Iconix Brand Group (ICON), 51job (JOBS), Ligand Pharmaceuticals (LGND), PTC Therapeutics (PTCT), and Repligen Corp (RGEN).
FireEye (FEYE) reported results that exceeded the EPS estimate but missed on revenue. The stock was down 17% as we were writing, which can be attributed to a significant downward revision in full-year revenue guidance. Albany Molecular Research (AMRI), Cenveo (CVO), HSN (HSNI), and Priceline Group (PCLN), with converts on both the Ugly 20 and HOCS 20, also reported EPS that exceeded estimates while revenue missed. Array BioPharma (ARRY), Gogo (GOGO), Orexigen Therapeutics (OREX), Renewable Energy Group (REGI) and Ugly 20 members BioMarin Pharmaceutical (BMRN) and Emergent BioSolutions (EBS) reported results that beat on the top line but missed on the bottom line.
Allscripts Healthcare Solutions (MDRX) missed on the top line and reported in-line EPS. Rounding out Thursday’s reports, Dynegy (DYN), ImmunoGen (IMGN), and Ironwood Pharmaceuticals (IRWD) all missed both the EPS and revenue estimates.
Finally, on Friday, CenterPoint Energy (CNP) and Pattern Energy Group (PEGI) missed both the EPS and revenue consensus estimates. Liberty Media (LMCA) beat the revenue consensus estimate. RAIT Financial Trust (RAS) missed the EPS estimate.
In other news this week, Emergent BioSolutions (EBS) has completed the spin-off of Aptevo Therapeutics (APVO). Aptevo will focus on the ADAPTIR technology. The conversion ratio for the company’s 2.875% of 2021 convertible notes will be adjusted to reflect the spin-off……… As we reported in Monday’s Hybrid Vigor, Ionis Pharmaceuticals (IONS) and Biogen (BIIB) reported positive interim results for a Nusinersen Phase III trial. Nusinersen is a treatment for spinal muscular atrophy. Biogen has exercised its option to develop and commercialize Nusinersen globally, which resulted in a $75 million payment to IONS as a license fee. IONS is eligible to receive up to an additional $150 million in milestone fees and tiered royalties on sales up to a mid-teens percentage. The stock was up 23% for the week………Molina Healthcare (MOH) is acquiring certain Medicare Advantage assets from Aetna and Humana. The acquisition will include 290,000 members in 21 states. MOH will pay cash of $117 million……. Orexigen Therapeutics (OREX) has announced a commercialization and distribution agreement with Laboratorios Farmaceuticos Rovi for Mysimba, its obesity drug, in Spain. Rovi expects to begin marketing the drug by year-end……… Trina Solar (TSL) has entered into an agreement to be taken private. ADS holders will receive $11.60 per share in cash. The total value of the transaction is approximately $1.1 billion and is expected to close in the first quarter of 2017……… Allergan (AGN) has announced the sale of its Anda distribution business to Teva Pharmaceuticals for $500 million. The transaction is expected to close by year-end.
For the upcoming week, we have earnings from MCHP, NVRO, NUAN, ON, PRAA, ENT, ENV, HZNP, IPHI, SINA, SREV, and TVIA on Monday; AMAG, BKD, CAS, CVG, EZPW, KEYW, LGIH, LNG, MWW, MTSC, PARR, PDCE, FSC, HWAY, INCY, IPXL, IONS, JAZZ, SCTY, SPPI, and SPWR on Tuesday; SSRI for Wednesday; and NVDA, RGLD, and VIAV for Thursday.
Enjoy your weekend!
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