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The convertible new issues market got a needed “shot in the arm” from Gilead Sciences’ (GILD) $2.2 billion of convertible debt, the biggest sale since Ford Motor Company (F) sold $2.5 billion of 4.25% convertible debt due 2016 in November 2009. On July 27, 2010, Gilead issued $1.1 billion aggregate principal amount of 1.00% convertible senior notes due 2014 and $1.1 billion aggregate principal amount of 1.625% convertible senior notes due 2016 to qualified institutional buyers (QIBs) under SEC Rule 144A of the Securities Act of 1933. According to Bloomberg data, the Gilead offering brought convertible “bond sales this year to $18.46 billion, . . . the slowest pace since 2005.”

Both series of notes will pay interest semiannually in arrears on May 1st and November 1st of each year, beginning November 1, 2010. The 1.00% notes mature on May 1, 2014 and the 1.625% notes on May 1, 2016, unless previously converted under the terms governing the issues.  The notes are convertible into cash up to the principal amount ($1,000.00) and any excess conversion value would be paid in cash, common stock, or a combination of both at the discretion of the company. The 2014 debt has an initial conversion ratio of 22.1845 shares of GILD common for an initial conversion price of about $45.08 per share, and the 2016 notes will initially convert into 22.0214 shares of GILD common at a conversion price of approximately $45.41 per share. The conversion premiums are 35% and 36% over the common price (of $33.39 a share at issuance), respectively.

Gilead Sciences discovers, develops, and commercialize proprietary treatments for viral diseases such treatments are sold both here and abroad. The company has enjoyed increasing levels of profitability over the past 10 years. According to our analyst, this trend should continue in 2010 and beyond. In fact, the analyst forecasts a $4.25-a-share profit by the year 2015, and the stock’s appreciation potential scores big. The analyst believes that the share price could reach as high as $80 over the next 3 to 5 years. Should that target become a reality, convertible holders could be in for a windfall.