Morning Commentary: Convertibles primary returns; Ascendis, Blackstone Mortgage eyed

By Abigail W. Adams

Portland, Me., March 24 – The convertibles primary market returned to action after a more than week hiatus with two offerings on deck.

Ascendis Pharma A/S plans to price $500 million of six-year convertible notes and Blackstone Mortgage Trust Inc. plans to price $300 million of five-year convertible notes after the market close on Thursday.

Ascendis’ deal looked cheap based on underwriters’ assumptions; however, it was heard to be wall-crossed, sources said.

Blackstone Mortgage’s offering modeled out to fair value based on underwriter’s assumptions with the yield on the common stock diminishing the attractiveness of the convertibles offering.

Ascendis wall-crossed

Ascendis Pharma plans to price $500 million of six-year convertible notes after the market close on Thursday with price talk for a coupon of 2% to 2.5% and an initial conversion premium of 37.5% to 42.5%.

The deal was heard to be in the market with assumptions of 450 basis points over Libor and a 40% vol., according to a market source.

Using those assumptions, the deal looked 2 points to 2.3 points cheap at the midpoint of talk, sources said.

However, the offering was heard to be wall-crossed.

The deal was coming as a “happy meal” with proceeds to be used to repurchase up to 1 million of the company’s American Depositary Shares in privately negotiated transactions.

Blackstone fair

Blackstone Mortgage Trust plans to price $300 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 4.75% to 5.25% and an initial conversion premium of 15% to 20%.

The deal was heard to be in the market with assumptions of 400 bps over Libor and a 20% vol., according to a market source.

Using those assumptions, the deal looked 0.125 point rich to fair value at the midpoint of talk, sources said.

While the convertible notes carry dividend protection above 62 cents a quarter, the large yield on the common stock reduced the attractiveness of the offering, a source said.

The real estate finance company’s stock carries a dividend of 7.76%.

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