Morning Commentary: 8x8 convertible notes offering eyed; Weibo, Illumina notes active

By Abigail W. Adams

Portland, Me., Feb. 13 – The convertibles primary market returned to action with one new deal set to price before the market close.

There are additional deals in the pipeline, sources said, and the calendar is expected to grow before the week comes to a close.

8x8, Inc. plans to price $200 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 0.5% to 1% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

Underwriters are marketing the deal with a credit spread of 325 basis points over Libor and a 40% vol., a source said.

Sources pegged the deal 2.5 points cheap to 3.6 points cheap at the midpoint of talk.

The credit spread seemed aggressive for a company that is a high vol. name and is not projected to make money in the coming two years, one source said.

While 8x8 has large growth potential, it still carries a good deal of risk with relatively low trading volume for stock and negative EBITDA, another source said.

However, the company has no debt prior to the convertible notes offering and the balance sheet looks good, another source said.

Meanwhile, the secondary space was relatively quiet early in Wednesday’s session with about $78 million on the tape.

Weibo Corp.’s 1.25% convertible notes due 2022 were active and slightly improved as the Beijing-based social media platform’s American Depositary Shares continued their upward momentum.

The 1.25% convertible notes were changing hands around 95.25 early in Wednesday’s session with more than $10 million on the tape.

Weibo’s equity traded up to $67.84, an increase of 3.87%, shortly before 11 a.m. ET. Equity was also on the rise on Tuesday.

Illumina Inc.’s 0% convertible notes due June 15, 2019 were also major volume movers early in Wednesday’s session.

The 0% notes were changing hands around 117.5 with more than $10 million on the tape.

Illumina stock traded up to $295.55, an increase of 1.15%, shortly before 11 a.m. ET.

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