Morning Commentary: IAC’s $1 billion two-tranche convertibles issue hits the secondary

By Abigail W. Adams

Portland, Me., May 22 – The convertibles secondary space was active early in Wednesday’s session with $1 billion in new paper hitting the space.

IAC/InterActive Corp. priced a $1 billion two-tranche offering of exchangeable notes after the market close on Tuesday.

The offering consisted of a $500 million tranche of seven-year notes, which priced at par to yield 0.875% with an initial exchange premium of 32.5%.

Pricing came at the rich end of revised price talk for a coupon of 0.875% to 1% and an initial exchange premium of 32.5%, according to a market source.

Initial price talk was for a coupon of 1% to 1.5% with an initial exchange premium of 27.5% to 32.5%.

IAC also priced a $500 million tranche of exchangeable notes due 2030 at par with a coupon of 2% and an initial exchange premium of 27.5%.

Pricing also fell on the rich end of revised price talk for a coupon of 2% to 2.25% and an initial exchange premium of 27.5%, according to a market source.

Initial talk was for a coupon of 1.75% to 2.25% with an initial exchange premium of 27.5% to 32.5%.

The new paper dominated activity in the secondary space.

However, both tranches were largely wrapped around par in active trading, a market source said.

The 0.875% exchangeable notes due 2026 were trading in a range of 99.75 and 100.25.

The shorter duration tranche was the busiest of the new paper with $200 million in estimated volume on the tape.

The 2% exchangeable notes due 2030 were largely trading at par. There was $80 million in estimated volume about one hour into Wednesday’s session.

IAC stock was off early Wednesday. Stock traded down to $226.01, a decrease of 1.09%, shortly before 11 a.m. ET.

While new paper from IAC dominated the secondary space, the primary market was preparing another new deal.

Veoneer, Inc. plans to price $150 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 3.75% to 4.25% and an initial conversion premium of 25% to 30%.

The deal was heard to be in the market with a credit spread of 800 basis points over Libor and a 40% vol., according to a market source.

The deal modeled about 6 points cheap at the midpoint of talk, one source said.

While the deal modeled cheap, the borrow on the stock was difficult, another source said.

The credit was also dicey, sources said.

The deal is pricing concurrently with a $350 million common stock offering, which carries a greenshoe of $52.5 million.

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