Tilray on tap; Boingo convertibles expand on debut; Apollo Commercial trades flat

By Abigail W. Adams

Portland, Me., Oct. 3 – After pricing $375 million over two deals after the market close on Tuesday, the convertible primary market remained active on Wednesday with a $400 million deal launching.

Tilray Inc. plans to price $400 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 4.75% to 5.25% and an initial conversion premium of 12.5% to 17.5%, according to a market source.

Cowen and Co. LLC (lead left), BMO Capital Markets Corp. and BofA Merrill Lynch are bookrunners for the Rule 144A deal, which carries a greenshoe of $60 million.

The deal is the second Rule 144A offering from the cannabis industry to come to market in 2018.

Boingo Wireless, Inc. priced $175 million of five-year convertible notes after the market close on Tuesday.

The new paper dominated activity in the secondary space with the notes trading up on an outright and dollar-neutral basis.

Apollo Commercial Real Estate Finance, Inc. priced $200 million of five-year convertible notes after the market close on Tuesday. The new paper was hovering around its issue price in secondary trading.

While trading activity was focused on the new paper to enter the space, market players were eyeing the U.S. bond market as the 10-year Treasury yield shot up to its highest level since 2011 at 3.157%.

While the move pushed valuations in the convertibles market lower, “no one is running for the exit yet,” a market source said.

Several names were still catching bids, a source said.

In the biotech space, Insmed Inc.’s 1.75% convertible notes due 2025 were rebounding off their lows earlier in the week with the notes improved on an outright and dollar-neutral basis.

Boingo expands

Boingo priced $175 million of five-year convertible notes at the midpoint of talk with a coupon of 1% and an initial conversion premium of 30%.

Price talk had been for a coupon of 0.75% to 1.25% and an initial conversion premium of 27.5% to 32.5%.

The notes were “a case study of a bond being priced cheap and opening up quickly,” a market source said.

The notes were at 102 bid prior to the market open and traded as high as 103.25 early in the session with stock up less than 1%, a market source said.

The 1% convertible notes were trading north of 104 as stock jumped in the afternoon. They were expanded about 2 points dollar-neutral, a source said.

More than $50 million bonds had traded about one hour after the opening bell and $100 million were on the tape by late afternoon.

Boingo stock closed Wednesday at $33.54, an increase of 3.04%.

Boingo was marketed with a credit spread of 350 basis points over Libor and a 40% vol., which modeled 1.5 points to 2 points cheap at the midpoint of talk, sources said.

The credit spread was wider than most tech deals that have come to market in the past year, which sources attributed to the company’s cash flow and EBITDA.

However, others were impressed with the company’s management and business model, which has a lot of potential, a market source said.

The deal was heard to be 7x oversubscribed, sources said.

Apollo trades in line

Apollo priced $200 million of five-year convertible notes with a coupon of 5.375%, an initial conversion premium of 10% and a reoffer price of 98.5.

Pricing came in line with price talk for a fixed coupon of 5.375% and fixed initial conversion premium of 10% and at the cheap end of talk for an issue price of 98.5 to 99.5, according to a market source.

The yield to maturity on the notes is 5.72% with the issue discount lowering the conversion premium to 7%, a market source said.

“At that price the premium dynamics work better,” the source said.

The notes were hovering around their issue price in secondary trading.

The notes traded as low as 98.25 and as high as 99 with most trades around 98.75 early in the session, sources said.

The notes continued to trade in a tight range into the afternoon and were seen changing hands between 98.5 and 98.875.

“It doesn’t get much more boring,” a market source said of the new paper.

The notes were trading on an outright basis with hedge players taking little interest in REIT paper due to its low vol.

The deal, which priced the same day it launched, was most likely a bought deal with the discounted issue price a result of pre-marketing, a market source said.

Insmed rebounds

Insmed’s 1.75% convertible notes due 2025 saw a slight rebound on Wednesday after a large drop earlier in the week.

The 1.75% notes gained about 4 points outright in light trading volume and were expanding dollar-neutral as the company’s stock regained its footing.

The notes were seen at 81.25 bid, 82 offered in the late afternoon with stock up 10%. They were expanding about 1.5 points dollar-neutral, a market source said.

Insmed stock closed Wednesday at $17.59, an increase of 9.94%.

The biotech company’s convertible notes dropped more than 11 points outright to trade in the 78 range and contracted about 1 point dollar-neutral as investor’s responded to the black-box label placed on Insmed’s new drug.

Insmed stock dropped more than 22% on Monday.

The FDA approved Insmed’s new drug, ALIS, to treat a rare lung disease after the market close on Friday.

While approved, the drug’s label will contain a black-box warning about increased risk of respiratory conditions and will restrict its use to treatment-resistance patients, Reuters reported.

Investors were optimistic the drug would be approved to treat a broader patient base, a market source said.

Mentioned in this article:

Apollo Commercial Real Estate Finance, Inc. NYSE: ARI

Boingo Wireless, Inc. Nasdaq: WIFI

Insmed Inc. Nasdaq: INSM

Tilray Inc. Nasdaq: TLRY

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