Morning Commentary: Market eyes Gogo’s $200 million offering of four-year convertibles

By Abigail W. Adams

Portland, Me., Nov. 16 – While market conditions dampened what was expected to be a high-volume week for new deal activity, the convertibles primary market has one more deal on the forward calendar.

Gogo Inc. plans to price $200 million of four-year convertible notes with price talk for a coupon of 5.5% to 6% and an initial conversion premium of 20% to 25%, according to a market source.

Underwriters were heard to be marketing the deal with a credit spread of 900 basis points over Libor and a 40% vol., a market source said.

The deal modeled 10 points cheap at the midpoint of talk assuming a normal borrow, the source said.

Other sources pegged the credit spread as 800 bps over Libor and a 45% vol., based on the valuation of the 3.75% convertible notes due 2020.

Using those assumptions, the deal modeled 5 points cheap with a 6% rate on the borrow.

However, the borrow is a problem, sources said.

The short interest in the name “is gigantic,” a source said, with more than 50% of the float shorted.

“There’s not a whole lot out there,” another source said of the stock.

Gogo intends to use proceeds to repurchase $200 million of the principal amount of the company’s 3.75% convertible notes due 2020 with remaining proceeds to be reserved for interest payments on the new notes.

In connection with the pricing, Gogo may amend the forward stock purchase transactions entered into upon the pricing of its 3.75% notes to extend their maturity.

The 3.75% convertible notes have an enormous premium and will never be in the money, a market source said.

However, they have rallied since July with the company’s credit story improving.

While the 3.75% convertible notes previously traded with a credit spread of 1,000 bps and a 45% vol., the spread has tightened to between 500 bps and 600 bps as stock almost doubled, a source said.

The notes traded around 88 in July but are now trading in the mid-90s.

© 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.