Merrimack moves up in active trade; new Ascent adds; Volcano gains; summer saps liquidity

By Rebecca Melvin

New York, July 12 - Merrimack Pharmaceuticals Inc.'s newly priced 4.5% convertibles traded higher Friday after the Cambridge, Mass.-based biopharmaceutical company priced an upsized $125 million of seven-year convertible senior notes at the midpoint of talked terms.

The new Merrimack bonds traded actively despite a generally light-volume day in the convertible market overall. They were "well bid since breaking," a syndicate source said.

Also marking a debut in convertibles, Ascent Capital Group Inc.'s newly priced 4% convertibles traded up to 101 bid, 102 offered in decent action after the Greenwood Village, Colo.-based holding company priced $90 million of seven-year convertible senior notes at the rich end and midpoint of talked terms.

Elsewhere, Volcano Corp. was eyed after the convertibles of the San Diego-based medical device company improved about 0.25 point on a dollar-neutral, or hedged, basis in the past couple of sessions compared to lows notched two weeks ago, a New York-based trader said.

The Volcano 1.75% convertibles due 2017 were seen Friday at 93.25 bid, 94 offered versus an underlying share price of $19.51, the trader said.

In general, market tone was better this week, but volumes were curbed by the typical summer months' slowdown, sources said.

"There are pockets of liquidity," a New York-based trader said regarding Friday's session. He said credit markets should be affected positively by equity markets that were more volatile Friday. "But we'll see next week; there's not enough moving today to know," he said.

Longer-dated paper, which softened in the beginning of the week with lower Treasury markets, improved.

Stocks turned mixed after a mostly positive start. But they pulled higher into the close. The Dow Jones industrial average added 3.38 points, or 0.2%, to 15,464.30; the S&P 500 stock index added 5.17 points, or 0.3%, to 1,680.19, but the Nasdaq stock market gained again, up 21.78 points, or 0.6%, to 3,600.08.

Merrimack up in active trade

Merrimack Pharmaceuticals' newly priced 4.5% convertibles due 2020 traded to as high as 104.5 in early action and with shares as much as 2% higher.

Later, the market was quoted at 103 bid, 104 offered versus the underlying share price at $5.06, a syndicate source said.

If the paper was moving on an 85% delta, the bonds were up about 2 points dollar neutral, a Connecticut-based trader said.

Trading action in the name was pretty significant given the size of the deal and generally light volume. It was the top traded name, according to Trace data shortly after 3 p.m. ET, with $71.83 million of bonds shown having changed hands.

But trading did not appear to be as broad-based. Several traders said they were not involved in the new deal. "No one has asked me on the name. It's probably the lead manager and maybe a couple of other guys," a New York-based trader said.

Pricing of the new issue was notable in that the underlying shares plunged 28% on Thursday. Shares improved by about 2% early Friday, but came back in, ending the day higher by a nickel, or 1%, at $5.08.

The paper was viewed as cheap using a credit spread of 850 basis points over Libor, 40% vol., with a 2% stock borrow, one source said. But a second source saw them rich at a higher stock borrow and higher credit spread.

The deal was upsized to $125 million of seven-year convertible senior notes from $75 million.

A concurrent stock offering of 5 million shares was downsized to $25 million from $50 million.

The bonds priced at the midpoint of talked terms, which were for a 4.25% to 4.75% coupon and 22.5% to 27.5% premium.

There is an $18.75 million greenshoe, upsized from $11.25 million.

Joint bookrunners were J.P. Morgan Securities LLC and BofA Merrill Lynch, with Cowen & Co. LLC acting as co-manager.

The notes are non-callable for life with no puts. There is takeover and dividend protection.

Proceeds from both offerings will be used to fund research and clinical development and seek marketing approval for MM-398 for the treatment of metastatic pancreatic cancer, to fund additional clinical-stage product candidates and for general corporate purposes.

New Ascent Capital adds

Ascent Capital's newly priced 4% convertibles due 2020 were seen at 101.5 bid, 102 offered versus an underlying share price of $77.55, according to a Connecticut-based analyst. A second source quoted them at 101 bid, 102 offered versus a share price of $77.50.

Ascent shares lost $1.61, or 2%, to $77.47 at the end of the session.

Like the Merrimack issue, the Ascent convertibles were seen having moved up about 2 points dollar neutral "on the bid side, using a delta of 80%," a Connecticut-based trader said.

One trader said he liked the fundamentals of Ascent, but noted that the stock borrow was tough, which would likely discourage hedged participation. Nevertheless, the deal came with a call spread. The strike on the warrant transactions was set at $118.62, boosting the premium from the issuer's perspective to about 50%.

Ascent priced $90 million of seven-year convertible senior notes after the market close Thursday to yield 4% with an initial conversion premium of 30%.

The registered deal priced at the rich end of 4% to 4.5% coupon talk and at the midpoint of 27.5% to 32.5% premium talk.

The registered offering has a$13.5 million greenshoe and was sold via joint bookrunners BofA Merrill Lynch, Credit Suisse Securities (USA) LLC, and Citigroup Global Markets Inc.

Proceeds will be used to fund a portion of the purchase price of a previously announced acquisition of Security Networks LLC by Monitronics. If the acquisition is not completed, Ascent will use proceeds for general corporate purposes.

The notes are non-callable for life with no puts. They have contingent conversion if shares rise to 130% of the conversion price. There is flexible settlement, and there is dividend and takeover protection.

Greenwood Village, Colo.-based Ascent Capital is a holding company with operating subsidiaries including home security alarm company Monitronics.

Mentioned in this article:

Ascent Capital Group Inc. Nasdaq: ASCMA

Merrimack Pharmaceuticals Inc. Nasdaq: MACK

Volcano Corp. Nasdaq: VOLC

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