Morning Commentary: Avantor convertible preferreds on tap; Exact Sciences in focus

By Abigail W. Adams

Portland, Me., May 15 – The convertibles secondary space was again subdued on Wednesday as volatility continued to roil equities amid an escalation in the trade war between the United States and China and geopolitical tensions involving Iran.

The primary market has been largely quiet as earnings continue to roll out and equities take a beating.

However, there will be new paper before the week is through.

After an extended roadshow, Avantor Inc. plans to price $500 million, or 10 million shares, of $50-par three-year series A mandatory convertible preferreds after the market close on Thursday with talk for a dividend of 5.75% to 6.25% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

The deal is pricing concurrently with its initial public offering, where it intends to price 153,999,900 shares at a price between $18.00 and $21.00 per share.

With the extended bookbuilding process, the deal had fallen off the radar of sources queried.

Some sources previously stated the new paper was expected to trade sloppy out of the gate with no borrow available to hedge.

The mandatory convertible preferreds are more like an equity surrogate, a source said.

The IPO may have included the concurrent offering due to a cap on the amount of equity that could be raised, the source said.

However, Avantor is a well-known name with a solid reputation, other sources said. The mandatory convertibles will be welcome due to the amount that is leaving the space.

Meanwhile, there was about $70 million in reported volume on the tape about one hour into Wednesday’s session with China-based corporations and the tech sector continuing to account for the majority of trading volume.

However, Exact Sciences Corp.’s 0.375% convertible notes due 2027 were major volume movers early in Wednesday’s session with the notes gaining outright as stock rebounded after dropping more than 12% since last Thursday.

The 0.375% notes rose about 3 points outright to 108.75, according to a market source. More than $6 million of the bonds were on the tape early in the session.

Exact Sciences stock was $94.00, an increase of 2.17%, shortly before 11 a.m. ET.

The diagnostic company’s stock took a beating on Friday and Monday after Guardant Health announced plans to develop a liquid biopsy test for colon cancer, which would compete with Exact Sciences’ flagship Cologuard product.

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