Morning Commentary: RingCentral convertible ‘looks good’; Frontier mandatories tank after earnings

By Abigail W. Adams

Portland, Me., Feb. 28 – The bookbuilding process is underway for RingCentral Inc.’s offering of $350 million of five-year convertible notes, and the deal looks good, according to market sources.

RingCentral plans to price after the market close on Wednesday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 25% to 30%.

The deal is being marketed with a credit spread of 275 basis points over Libor and a 38% vol. The deal is attractive, a market source said. “They’ll probably reprice it,” the source said.

The Belmont, Calif.-based provider of SaaS for business communications is a “great new fundamental name in the convert space,” a market source said. The recent deals over the past two weeks have all come from mid-cap software companies.

Okta Inc.’s recently priced 0.25% convertible notes due 2023 were also pegged as an attractive deal. Okta’s 0.25% convertible notes priced “out of range” on Feb. 22 with an initial conversion premium of 35%. Price talk had been for a coupon of 0.25% to 0.75% and an initial conversion premium of 27.5% to 32.5%.

Okta’s 0.25% notes expanded on debut. The notes were trading north of 104 early in Wednesday’s session as stock was up a little more than 2%.

While the market awaits new paper, Frontier Communications Corp.’s soon to mature 11.125% series A mandatory convertible preferred stock continued its downward spiral. The mandatory convertible preferred stock, which priced at par of $100 in June 2015, traded down to $12.19, a decrease of 12.11%, early in Wednesday’s session.

The Stamford, Conn.-based telecommunications company reported fourth-quarter and year-end results after the market close Tuesday. Frontier reported a net loss attributable to common shares of $1.08 billion for the fourth quarter, or a diluted net loss per common share of $13.91.

Net loss attributable to common shares was $2.02 billion, or $25.99 per common share, for 2017. Frontier’s board of directors also announced a suspension of the dividend on common shares.

Frontier’s common stock was down $6.85, a decrease of 25.87%. The 11.125% series A mandatory convertible preferred stock matures on June 29, 2018.

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