Morning Commentary: Newpark brings downsized deal with upsized coupon; Evolent Health trades up

By Stephanie N. Rotondo

Seattle, Nov. 30 – It was “a good day in convertibles,” a trader said Wednesday, as two new issues hit the tape.

Newpark Resources Inc. brought $87.5 million of 4% convertible senior notes due 2021 at par to yield 4% with an initial conversion premium of 30%.

The deal was originally slated to be in the amount of $100 million, with price talk at 3.25% to 3.75%.

One New York-based sellside source said the new deal was “trading up a storm,” moving in a range of 102 to 107.875.

“The stock did better,” the source noted, gaining 70 cents in early dealings. That put the bonds trading at “almost a 100% delta.”

The trader speculated that the deal was downsized due to “tepid demand” for the energy-linked paper. But ahead of pricing, it was probably believed that the deal would come upsized, say around $125 million, the trader said.

Given that, “guys probably overshorted this thing,” the trader said.

The trader also noted that in the wake of the new issue, the company’s 4% convertible notes due 2017 were trading at par, as investors sold those bonds back to the underwriter for the company to retire.

“They were swapping for optionality,” he said, as the 2017 paper matures in about 10 months, whereas the new deal doesn’t come due for about five years.

He added that “probably around $80 million” of the old notes were retired.

The initial conversion rate on the new issue is 107.1381 shares per each $1,000 of notes, equating to a conversion price of $9.33 per share.

Meanwhile, Evolent Health Inc. also brought a deal, a $110 million offering of 2% convertible senior notes due 2021 with an initial conversion premium of 27.5%.

That issue was trading in a 104.5 to 105 context at mid-morning.

The underlying shares (NYSE: EVH), however, were off 2 cents at $18.83.

The debt is convertible into class A common stock at an initial conversion rate of 41.60822 shares per each $1,000 of notes. The initial conversion price is $24.03 per share.

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