Square, Envestnet convertibles hit the market, expand; Ligand, NRG, FireEye below par

By Abigail W. Adams

Portland, Me., May 23 – The secondary space for convertibles saw $1.05 billion in new paper on Wednesday in another high-volume week for new deals.

New paper from Square Inc. and Envestnet Inc. dominated trading activity in the secondary space, accounting for about one fourth of the total trading volume by dollar amount by late afternoon.

Both notes were seen expanded on a dollar-neutral basis on their debut.

While Square and Envestnet were in focus on Wednesday, new paper from FireEye Inc. and NRG Energy Inc. continued to be active with both notes trading below par.

Ligand Pharmaceuticals Inc.’s recently priced 0.75% convertible notes due 2023 were trading in the 98 range on Wednesday. The notes have traded below par since Monday when the company’s stock took a hit.

Despite trading below par, the deal’s $100 million greenshoe was exercised in full.

The convertibles space has seen an onslaught of new paper in the past two weeks with $2.3 billion pricing so far this week and $3.1 billion pricing last week, the heaviest volume week for new deals year to date.

While the influx of new paper has weighed heavily on outstanding issuances earlier in the week, with buyers hard to find, that began to change on Wednesday, a market source said.

There was an uptick in activity in secondary trading away from the recent deals during the session, a source said.

Ctrip.com International Ltd.’s convertible notes were active on Wednesday and making gains alongside stock after the company announced a first-quarter earnings beat after the market close on Tuesday.

Square’s deal

Square priced $750 million of five-year convertible notes after the market close on Tuesday at the cheap end of talk with a coupon of 0.5% and an initial conversion premium of 42.5%.

Price talk had been for a coupon of 0% to 0.5% and an initial conversion premium of 42.5% to 47.5%, according to a market source.

The new notes dominated trading activity in the secondary space with about $100 million of the bonds on the tape by late afternoon.

The 0.5% notes were seen trading between 100.125 and 100.625 with the stock largely flat early in the session.

“They’re rocking now,” a market source said, as Square stock turned around and started making gains later in the afternoon.

They were seen at 100.5 bid, 101 offered with stock at $54.85 mid-afternoon, the source said.

The notes closed the day at 100.875 bid, 101.375 offered versus a stock price of $55.09.

They were expanded about 0.5 point dollar neutral, a market source said.

The deal was lightly hedged with about $150 million of the bonds put up on swap, a market source said.

However, it is possible some hedging activity took place in anticipation of the deal on Tuesday, the source said.

The notes were moving on a 50% to 55% delta, market sources said.

Envestnet’s deal

Envestnet priced $300 million of five-year convertible notes after the market close on Tuesday at the cheap end of talk with a coupon of 1.75% and an initial conversion premium of 30%.

Price talk had been for a coupon of 1.25% to 1.75% and an initial conversion premium of 30% to 35%, according to a market source.

The new 1.75% notes due 2023 were seen trading in a range of 99.875 to 100.375 with the stock down about 0.5% early in the session.

The notes climbed as stock rebounded in the afternoon.

The 1.75% notes due 2023 were seen at 101.75 bid, 102.25 offered with the stock at $53.95 mid-afternoon, a market source said.

The notes closed the day at 102.625 bid, 103.125 offered with stock at $54.90. They were expanded about 0.5 point dollar neutral mid-afternoon and closed the day up 0.875 point dollar neutral, a market source said.

The notes move on about a 60% delta, a market source said.

About $64 million of the bonds had traded by late afternoon.

Envestnet plans to use proceeds, in part, for the opportunistic repurchase or retirement of the company’s outstanding 1.75% convertible notes due 2019.

The 1.75% convertible notes due 2019 traded at 105.25 on Tuesday, according to Trace data.

Below par

As Square’s and Envestnet’s new convertible notes saw gains on an outright and dollar-neutral basis, the new deals that hit the market on Tuesday were seen trading below par.

FireEye’s new 0.875% convertible notes due 2024 have largely traded below par since their debut on Tuesday. The 0.875% notes traded at 98.75 with stock at $16.55 late afternoon Wednesday.

FireEye stock closed Wednesday at $16.67, a decrease of 0.48%.

The notes were wrapped around 99.5 on Tuesday and were flat on a dollar-neutral basis.

Meanwhile, NRG Energy’s new 2.75% convertible notes due 2048 were coming in about 0.25 point dollar neutral on Wednesday after closing Tuesday with a 0.5 point expansion, a market source said.

The notes were seen trading at 99.4 with stock at $32.90 Wednesday afternoon.

The 2.75% notes were hunched just above par on Tuesday.

Separately, Ligand Pharmaceuticals’ recently priced 0.75% convertible notes due 2023 were seen trading at 98.75 on Wednesday. The notes have traded below par since Monday when the stock dropped off almost 5%.

The notes were largely trading in line dollar neutral, a market source said.

The deal was heavily allocated to outright accounts with about $100 million of the $650 million deal put up on swap, sources said.

While the notes have traded below par since Monday, the $100 million greenshoe on the deal was recently exercised in full.

It was previously rare to see greenshoes exercised on deals that were trading below par, a market source said.

Ctrip.com’s earnings

While new paper has been the focus of the convertibles space over the past two weeks, there was a notable uptick in trading activity in long-standing issuances during Wednesday’s session.

The market has been heavy over the past few days with little buyer interest outside of the new deals, sources said. However, buyers were starting to come around on Wednesday.

Ctrip.com’s 1.25% convertible notes due Oct. 15, 2018 were a volume leader on Wednesday although trading paled in comparison to Square and Envestnet.

The 1.25% notes gained about 5 points outright as the Shanghai-based travel service providers’ American Depositary Shares climbed.

The 1.25% notes were seen trading just south of 119 versus an equity price of $46.04.

Ctrip.com’s 1% notes due 2020 were seen trading just north of 105 with equity at $45.50.

Ctrip.com’s ADS closed Wednesday at $45.17, an increase of 3.98%.

Ctrip.com reported first-quarter earnings per share of 29 cents and non-GAAP earnings per share of 55 cents. Analysts were expecting earnings per share of 16 cents.

Mentioned in this article:

Ctrip.com International Ltd. Nasdaq: CTRP

Envestnet Inc. NYSE: ENV

FireEye Inc. Nasdaq: FEYE

Ligand Pharmaceuticals Inc. Nasdaq: LGND

NRG Energy Inc. NYSE: NRG

Square Inc. NYSE: SQ

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.