Morning Commentary: Tilray’s new convertible notes hit the market, hover near par early

By Abigail W. Adams

Portland, Me., Oct. 5 – Friday opened with $450 million in new convertibles hitting the secondary space.

Tilray Inc. priced an upsized $450 million of five-year convertible notes after the market close on Thursday at the midpoint of talk with a coupon of 5% and an initial conversion premium of 15%.

Price talk had been for a coupon of 4.75% to 5.25% and an initial conversion premium of 12.5% to 17.5%.

The deal was upsized from $400 million. The greenshoe was also upsized to $67.5 million from $60 million.

“People liked the story,” a market source said.

The new paper traded up to 101 bid, 101.5 offered with stock up early in the session.

However, the notes came in alongside stock and were seen trading at par versus a stock price of $146.00 shortly before 11 a.m. ET, sources said.

With no borrow on the stock, the trading activity was driven by outright accounts.

Valuations of the deal from the British Columbia-based medical cannabis company varied widely based on the assumptions used.

The deal was marketed with a credit spread of 500 basis points over Libor and a 40% vol., which modeled about 5 points cheap.

However, other sources pegged the credit spread at 800 bps, with the notes modeling about 15 points rich.

Some sources felt the wider credit spread was needed due to the short time frame the company has been public and the small amount of revenue reported last quarter.

However, people were buying in based on the growth story with the company’s revenue and customer base on the rise, sources said.

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