Danimer convertibles offering sees pushback; Global Blood gains; Luminar, Ford improve

By Abigail W. Adams

Portland, Me., Dec. 16 – The convertibles primary market stood poised to cap an active week for new issuance with one more offering.

Danimer Scientific, Inc. plans to price $175 million of five-year convertible notes after the market close on Thursday.

While the deal modeled cheap based on underwriters’ assumptions, some sources questioned the credit spread used. The borrow on the stock was also pointed to as an issue.

Meanwhile, the convertibles secondary space was soft on a volatile day for equity markets.

While equity benchmarks opened the day with gains, they closed in the red as the market continued to digest the Federal Reserve’s new timeline for the rollback of pandemic-era stimulus.

The Dow Jones industrial average closed the day down 30 points, or 0.08%, the S&P 500 index closed down 0.87%, the Nasdaq Composite closed down 2.47% and the Russell 2000 index closed down 1.79%.

Despite the weakness in the market, Global Blood Therapeutics Inc.’s 1.875% convertible notes due 2028 continued their upward momentum in active trading.

Luminar Technologies Inc.’s 1.25% convertible notes due 2026 improved on an outright and dollar-neutral basis in intraday activity, although the notes gave back much of their gains heading into the close.

Outside of recent issues, Ford Motor Co.’s 0% convertible notes due 2026 were also posting gains on an outright and dollar-neutral basis in active trading.

Danimer eyed

Danimer plans to price $175 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 3% to 3.5% and an initial conversion premium of 25% to 30%.

The deal was heard to be in the market with assumptions of 650 basis points over Libor and a 40% vol., a source said.

However, some sources felt the credit spread was aggressive and pegged it at 750 bps or higher.

The Bainbridge, Ga.-based biopolymer manufacturer is a highly speculative company with an $878 million market cap and short interest of almost 15%, a source said.

Valuations for such highly speculative companies are difficult given the variations in the borrow rate, the source said.

Assuming a normal borrow, the deal looked 8 points cheap at the midpoint of talk.

However, deals that model that cheap tend to have issues with the borrow, which will decrease the fair value of the deal, sources said.

For small amounts of the company’s stock, the borrow is not an issue. However, for large amounts, the borrow rate is astronomical, a source said.

Danimer is the latest convertible notes issuer to have gone public recently through a SPAC deal.

The companies that have been brought public through SPACs have become highly suspect recently.

“People are not believing the valuations of these companies,” a source said.

Danimer is poised to be the second deal of the week to price a convertible note after hitting its 52-week low.

Stock hit its 52-week low of $8.34 on Thursday before closing the day at $8.46, a decrease of 20.11%.

Stock was at its all-time high of $66.30 in February.

Day 2

Global Blood Therapeutics’ recently priced 1.875% convertible notes due 2028 and Luminar Technologies’ 1.25% convertible notes due 2026 remained active their second day in the secondary space.

Global Blood’s 1.875% convertible notes continued to rip higher on Thursday.

The notes traded up to 111 and expanded another 1 point dollar-neutral, a source said.

Global Blood’s stock traded to a high of $28.99 and a low of $27.22 before closing the day at $27.65, a decrease of 1.95%.

The 1.875% convertible notes outperformed on their secondary market debut on Wednesday.

The notes, which priced at par after stock hit its 52-week low on Tuesday, gained 9 points outright and expanded 4 to 5 points dollar-neutral.

However, hedge funds that got cut out of allocations and were short covering helped contribute to the outperformance of the notes.

The deal was also sweetened by extending the hard call protection on the notes to six years from four years.

“That caused people to take a second look,” a source said.

Luminar’s 1.25% convertible notes due 2026 improved their second day in the secondary space after a rough secondary market debut.

The notes popped above par in intraday activity but gave back much of their outright gains as the session progressed.

They were seen trading around 98 heading into the market close.

However, the notes improved on a dollar-neutral basis and were seen expanded 0.25 to 0.375 point, a source said.

Luminar’s stock traded to a high of $15.73 and a low of $14.62 before closing the day at $14.91, a decrease of 1.06%.

The notes, which priced at par, traded as low as 95 on their secondary market debut before closing the day on a 98-handle.

They were marked down 1 point on a dollar-neutral basis. However, Thursday’s gains pared their dollar-neutral losses.

Ford active

Ford’s 0% convertible notes due 2026 were improved in active trading on Thursday.

The 0% notes were up about 2.75 points outright as stock gained 4%.

They were changing hands at 137.5 versus a stock price of $21.10 about one hour into the session.

The convertibles continued to trade around 137 as the session progressed.

The notes improved about 0.5 point dollar-neutral.

Ford’s stock traded to a high of $21.10 and a low of $20.26 before closing the day at $20.35, an increase of 0.79%.

Stock has been electrified as the auto maker positions itself as a competitor in the electric vehicle market.

The company announced recently that it has stopped taking reservations for its electric F-150 model, which will begin production in the spring.

The company also recently announced that it would be tripling production capacity for its electric Mustang model.

Mentioned in this article:

Danimer Scientific, Inc. NYSE: DNMR

Ford Motor Co. NYSE: F

Global Blood Therapeutics Inc. Nasdaq: GBT

Luminar Technologies Inc. Nasdaq: LAZR

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