NEW ISSUE (PENDING): $425 MILLION ISIS PHARMACEUTICAL (ISIS) CONVERTIBLE SENIOR NOTES

Based on price-talk midpoints believed to be 0.75% up 32.5% on a seven-year bullet, our preliminary HOCS (Hillside Overall Convertible Score) array is 67 Overall/77 Growth/48 Safety. While 50 is an average score for the universe, we expect new deals to score considerably higher, as this one does.  By way of reference, last week's LinkedIn deal was ultimately (and generously, we felt) priced at a HOCS slash line of 80 Overall/77 Growth/86 Safety.  So this deal is comparable to LinkedIN on the growth line but far behind on safety--which should not be a huge surprise.  

Clearly this deal is most advantageous for holders of the old bonds who will be taken out at a premium to recent levels.  However, the upward pressure on the stock caused by arbs repurchasing shares will be a disincentive to other buyers. If we assume the stock retreats to its previous close after the deal is priced, the revised HOCS slash line becomes 63/70/48--still acceptable but fairly modest for a new issue.  We estimate that the repurchase may cause as many as four million shares to be bought on balance--two or three days' volume--so it makes sense to expect a pullback after the deal is priced.