Zillow, Interxon, Goldman Sachs BDC on tap; Fortive expands; Momo ‘gets crushed’

By Abigail W. Adams

Portland, Me., June 27 – The convertibles space opened Wednesday with $1.85 billion in new paper hitting the secondary market and $557.5 million in three deals launching after the market close.

Goldman Sachs BDC, Inc. plans to price a $32.5 million add-on to its 4.5% convertible notes due 2022 prior to the market open on Thursday, according to a 497AD filing with the Securities and Exchange Commission.

SunTrust Robinson Humphrey Inc., BofA Merrill Lynch, Morgan Stanley & Co. LLC and Goldman Sachs & Co. are the joint bookrunners.

Zillow Group Inc. plans to sell $325 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 1% to 1.5% and an initial conversion premium of 37.5% to 42.5%, according to a market source.

Goldman Sachs & Co. and Citigroup Global Markets Inc. are the bookrunners for the registered offering, which carries a greenshoe of $48.75 million.

The notes are being offered concurrently with a $325 million class C capital stock offering.

Intrexon Corp. plans to sell $200 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 27.5% to 32.5%, according to a market source.

J.P. Morgan Securities LLC is the bookrunner for the registered offering, which carries a greenshoe of $30 million.

Concurrently with the convertible notes offering, Intrexon is offering $100 million of common stock, which will be loaned to JPMorgan in a share lending agreement to enable hedging activity.

Fortive Corp. priced an upsized $1.2 billion, or 1.2 million shares, of series A mandatory convertible preferred stock after the market close on Tuesday.

The deal was heavily oversubscribed during bookbuilding and expanded on its market debut, sources said.

Momo Inc. priced $650 million of seven-year convertible notes prior to the market open on Wednesday.

The deal was also oversubscribed during bookbuilding.

However, Momo’s notes saw a volatile session in the secondary market. While at one point expanded, the notes “got crushed” in the afternoon, trading as low as 95.75 after Spruce Point Capital Management released a negative report on the Beijing-based company.

The market was in general heavy on Wednesday with the influx of new paper and equities again taking a hit, a market source said.

However, Transocean Inc.’s 0.5% convertible notes due 2023 were “a shining spot” in the space with the notes active and making gains on an outright basis as the company prepared a new junk bond offering.

Fortive’s deal

Fortive priced an upsized $1.2 billion, or 1.2 million shares, of series A mandatory convertible preferred stock after the market close on Tuesday at the rich end of talk with a dividend of 5% and an initial conversion premium of 22.5%.

Price talk had been for a dividend of 5% to 5.5% and an initial conversion premium of 17.5% to 22.5%, according to a market source.

The greenshoe was upsized to $180 million, or 180,000 shares. The initial size of the deal had been $1 billion with a greenshoe of $150 million.

The deal was “strongly oversubscribed,” a market source said. Buyers included investors with positions in the common stock and mandatory convertible players, the source said.

The preferred stock was seen between 100 and 100.5 in high-volume trading early in the session, a market source said.

It was seen a short time later at 100.88 bid versus a common stock price of $75.75.

The preferred stock was expanding about 0.375 point on a dollar-neutral, or hedged, basis, a source said.

The notes came in as the afternoon progressed and closed the day at par. They were expanded about 0.25 point toward market close, a market source said.

Fortive’s mandatory convertible preferred stock deal was well timed with Frontier Communications Corp.’s 11.125% series A mandatory convertible preferred stock exiting the space on Friday.

The $100-par mandatory convertible preferreds “were huge losers,” during their lifetime, a market source said.

The notes were seen at $10.87 bid, $10.93 offered versus a common stock price of $6.16 on Wednesday.

Momo volatile

Momo priced $650 million of seven-year convertible notes prior to the market open on Wednesday at the midpoint of talk with a coupon of 1.25% and an initial conversion premium of 42.5%.

Price talk had been for a coupon of 1% to 1.5% and an initial conversion premium of 40% to 45%, according to a market source.

The subscription process went well and was well oversubscribed at the midpoint of talk, a source said.

The deal attracted “just about everyone” with long only and hedged accounts participating in the offering, the source said.

The notes traded as high as 101 with the company’s equity spiking prior to the market open, a market source said.

However, the notes quickly traded down to 99.5 with the American Depositary Shares down 1% early in the session.

The notes were moving on a 60% delta and were holding dollar neutral early in the day, a market source said.

However, the convertible notes plummeted alongside its shares after Spruce Point Capital Management released its research report “Mo(mo) Money, Mo(mo) Problems” with a strong sell recommendation.

The 1.25% convertible notes traded to a low of 95.75 during Wednesday’s session with the stock down almost 8%. They were seen trading at 97.125 versus an equity price of $43.12 shortly before the market close.

The notes were expanded about 0.75 point dollar neutral at one point during Wednesday’s session. They closed the day contracted about 0.5 point dollar neutral.

Momo stock closed Wednesday at $42.86, a decrease of 5.47%.

Momo’s 1.25% notes dominated trading activity in the secondary space with more than $140 million of the bonds on the tape by late afternoon.

The deal was brought to market with proceeds to be used to repay the $300 million bank loan facility used to acquire Tantan Ltd., to repay the remaining amount for the acquisition and to invest in Tantan’s business development.

The Spruce Point report alleges Momo overvalued Tantan, a dating app in China, acquiring the company for $735 million in February when it was valued at $320 million in June 2017.

The report also alleged numerous other financial improprieties.

Transocean active

While the market was generally heavy on Wednesday, Transocean’s 0.5% convertible notes due 2023 were trading up alongside its stock.

The notes were up about 7 points outright and were seen trading at 142.2 versus an equity price of $13.97.

The notes were among the most actively traded in the space outside of the new paper with $18 million on the tape.

The convertible notes were surging on the strength of the energy sector with the price of West Texas intermediate crude oil for August delivery again shooting past $70 a barrel.

The company also priced a $750 million junk bond offering on Wednesday.

Mentioned in this article:

Fortive Corp. NYSE: FTV

Frontier Communications Corp. Nasdaq: FTR

Goldman Sachs BDC, Inc. NYSE: GSBD

Intrexon Corp. NYSE: XON

Momo Inc. Nasdaq: MOMO

Transocean Inc. NYSE: RIG

Zillow Group Inc. Nasdaq: Z

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