MercadoLibre, Cree hit market with $1.3 billion of convertibles; Exact Sciences expands

By Abigail W. Adams

Portland, Me., Aug. 22 – After a slow start to the week with low trading volume, the convertibles secondary space was active on Wednesday with $1.3 billion in new paper to digest.

MercadoLibre, Inc. priced $800 million of 10-year convertible notes and Cree Inc. priced $500 million of five-year convertible notes prior to the market open on Wednesday.

Both notes “languished” on debut with Cree seen trading largely flat and MercadoLibre contracting on a dollar-neutral basis, a market source said.

Outside of the new paper, Exact Sciences Corp.’s 1% convertible notes due 2025 jumped on both an outright and dollar-neutral basis after the medical diagnostic company inked a marketing and sales agreement with Pfizer Inc. for its flagship Cologuard product.

While the primary market is expected to be quiet for the remainder of August, September is going to be a busy month, market sources said.

MercadoLibre contracts

MercadoLibre priced $800 million of 10-year convertible notes at the cheap end of talk with a coupon of 2% and an initial conversion premium of 35%.

Price talk had been for a coupon of 1.5% to 2% and an initial conversion premium of 35% to 40%, according to a market source.

MercadoLibre’s offering was a “full-sized deal,” a market source said, and the largest to price in August.

The new notes dominated secondary market activity early in the session with more than $87 million of the bonds on the tape early in the session and $134 million on the tape late into the afternoon.

However, the 2% notes were “trading sloppy” on their market debut, a market source said. They were seen at 99.5 out of the gate with some trades as low as 98.5. The notes gained some steam into the afternoon and traded to a high of 100.25, a market source said.

The notes were seen contracted by about 1 point to 2.5 points dollar-neutral throughout the session, sources said.

MercadoLibre’s stock closed Wednesday at $344.93, an increase of $16.48 or 5.02%. MercadoLibre’s stock trades thin and moves a couple points on only a few thousand shares, a market source said.

Proceeds from the new convertible notes offering will be used to repurchase, exchange or otherwise retire $263.7 million principal amount of the Buenos Aires-based e-commerce company’s 2.25% convertible notes due 2019 in separately negotiated transactions.

The exchange or repurchase will consist of $348.1 million in cash and about 1 million shares of common stock, according to a company news release.

The notes appeared to be repurchased for 261.635, a market source said.

Cree’s debut

Cree sold $500 million of five-year convertible notes prior to the market open on Wednesday at par with a coupon of 0.875% and an initial conversion premium of 31%.

Pricing came at the cheap end of talk for a coupon of 0.375% to 0.875% and toward the cheap end of talk for an initial conversion premium of 30% to 35%.

There was good demand during the book building process given the size of the deal and the sector, a market source said.

The deal attracted outright accounts and larger hedge funds. The scale of the deal gave many accounts an opportunity to put money to work, a market source said.

Cree is new to the convertibles universe. The manufacturer of lighting and semiconductor products for power and radio frequency applications is different than the traditional tech names that have flooded the market with paper in recent months.

“People liked the new subsector,” a market source said.

More than $50 million of the bonds were on the tape early in the session and $121 million into the afternoon. There was good trading volume from both outright and hedge accounts, a source said.

The notes were trading “boringly flat-ish,” a market source said.

They were largely wrapped around par throughout Wednesday’s session. The notes saw a slight 0.25 to 0.375 point expansion dollar-neutral early in the session but were largely flat dollar-neutral into the afternoon, a market source said.

Cree stock closed Wednesday at $45.88, an increase of 0.22%.

Exact Sciences jumps

While trading volume paled in comparison to the new paper, Exact Sciences’ 1% convertible notes due 2025 were active and making large gains on both an outright and a dollar-neutral basis as stock soared more than 30%.

The notes were up about 14 points outright. They were seen trading at 109.867 versus an equity price of $63.35.

The notes were quoted at 110.56 at market close after closing Tuesday at 95.86, according to a market source.

Exact Sciences stock closed Wednesday at $65.32, an increase of 30.51%.

Exact Sciences’ stock soared on Wednesday after the company announced a sales and marketing partnership with Pfizer for the company’s flagship Cologuard product.

Pfizer will join Exact Sciences’ sales representatives in selling the colorectal cancer screening product, putting in at least 625,000 sales calls a year.

The companies also committed to spend $174 million on marketing over four years, according to a company news release.

While the 1% notes were the third most actively traded issue of the day with about $19 million bonds on the tape in the late afternoon, some sources were surprised more bonds were not in play.

The 1% notes currently have about $900 million outstanding.

“The trading’s pretty light for such a large issue,” a market source said. However, the allocation was chunky with 1 holder owning about half of the total issue.

Exact Sciences initially priced $690 million of the 1% notes in January at 98.75 and priced a $218.5 million add-on at 106.5 in June.

Mentioned in this article:

Cree Inc. Nasdaq: CREE

Exact Sciences Corp. Nasdaq: EXAS

MercadoLibre, Inc. Nasdaq: MELI

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