Guess? convertible notes offering eyed; Twitter notes in focus; Gogo up on tender offer

By Abigail W. Adams

Portland, Me., April 23 – As the convertibles space enters into the heart of earnings season, the primary market remained active with one new deal set to price after the market close.

Guess? Inc. plans to price $250 million of five-year convertible notes after the market close on Tuesday. The deal looked cheap based on underwriters’ assumptions, sources said.

Meanwhile, the convertible secondary space returned to action after a sluggish start to the week with an uptick in trading volume.

The tone of the market was improved on Tuesday with indexes breaking records on the back of earnings surprises.

With new issue activity less than anticipated, there were more buyers than sellers in the secondary space, a market source said.

Twitter Inc.’s convertible notes were in focus and making gains on an outright and dollar-neutral basis following an earnings beat.

Gogo Inc.’s 6% convertible notes due 2022 were making gains following a tender offer for its 3.75% convertible notes due 2022.

Guess? looks cheap

Guess? plans to price $250 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 2% to 2.5% and an initial conversion premium of 32.5% to 37.5%.

The deal is being marketed with a credit spread of 400 basis points over Libor and a 40% vol., according to a market source.

Using those assumptions, sources pegged the deal about 1.5 points cheap at the midpoint of talk.

The deal is the first convertible notes offering from the retail sector in a long time and may appeal to investors looking for exposure to the sector, a source said.

The convertible notes offering also offers some diversity to the convertibles universe that has been largely dominated by the tech sector.

While some sources were not wild about the retail sector, others noted the vol. in the stock would be a plus.

The majority of proceeds from the offering will be used to repurchase stock.

The clothing and fashion accessory retailer announced a dividend cut alongside the convertible notes offering.

While down in after-hours trading, Guess? stock jumped more than 12% during Tuesday’s session.

Stock closed the day at $18.75, an increase of 12.61%.

Twitter in focus

Twitter’s convertible notes were major volume movers in the secondary space on Tuesday with the notes improved following an earnings beat.

While Twitter’s 0.25% convertible notes due 2024 expanded on the stock move, the social media platform’s 1% convertible notes due 2021 were largely moving in line dollar-neutral, a source said.

The 0.25% convertible notes rose 5 points outright to 99 early in Tuesday’s session.

They broke par heading into the afternoon and closed the day north of 100.25, according to a market source.

They were expanded 0.75 point to 1.25 points dollar-neutral, a market source said.

The 1% convertible notes due 2021 gained 1.5 points outright to close the day at 96.125. They were unchanged dollar-neutral, a market source said.

Twitter stock soared following a large earnings beat and an uptick in active users.

Stock traded as high as $40.53 before closing the day at $39.70, an increase of 15.44%.

The social media platform reported earnings per share of 37 cents versus analyst expectations for earnings per share of 15 cents for the first quarter.

Revenue was $787 million versus analyst expectations for revenue of $776.1 million.

Monthly active users also beat expectations with 330 million users versus the 318 million analysts expected.

Gogo active

Gogo’s 6% convertible notes due 2022 were making gains following a tender offer for the inflight broadband connectivity company’s 3.75% convertible notes due 2022.

The 6% notes traded as high as 104.5 on Tuesday, according to a market source. The notes, which rarely trade, have been active and making gains since the tender offer was announced last week.

Gogo tendered for the $162 million outstanding of its 3.75% convertible notes. Proceeds from a $900 million issue of senior secured first-lien notes were used to finance the tender offer.

The financing and tender offer were a credit positive for the struggling company, a market source said.

The 6% convertible notes were trading in the low 90s at the start of the year.

Gogo has been a distressed name and those that bought the 6% notes at distressed levels were now selling it with the notes on the rise, a market source said.

Mentioned in this article:

Gogo Inc. Nasdaq: GOGO

Guess? Inc. NYSE: GES

Twitter Inc. NYSE: TWTR

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