New NICE, Liberty deals garner focus; secondary steady as stocks trade narrowly mixed

By Rebecca Melvin

New York, Aug. 25 – Convertibles traders were focused on two new deals in the market on Tuesday including Liberty Broadband Corp.’s new, upsized $500 million of 2.75% senior debentures exchangeable for Charter Communications, Inc. common stock, and NICE Ltd.’s new $400 million of 0% convertible senior notes due 2025.

Those two deals “are where the action is,” a New York-based market source said. “It’s pretty quiet otherwise.”

The new Liberty paper is exchangeable for Charter shares, which were lower in the early going and last down about 1% at $606.48.

Shares of NICE bounced higher at the open however and were last up $6.78, or 3%, at $224.36.

Aside from the new issues, trading was light and pricing wasn’t tracking in step with narrowly mixed moves in the underlying stocks.

After the market close, online education company K12 Inc. unveiled plans to price $300 million of seven-year convertible senior notes under Rule 144A, according to a news release on Tuesday.

Elsewhere in trade, Twitter Inc.’s 0.25% convertibles closed down 0.2 point to 0.3 point on the day, in line with the underlying shares. The bond traded last at 107.633, which was down from 107.901 last on Monday and an early trade Tuesday at 107.870. Shares of the San Francisco-based social networking company closed higher at $40.55, which was up 0.2% on the day. The stock hit a low of $39.32 at about 10 a.m. ET, about unchanged on the day.

Sell the news

While stocks were for the most part lower on narrowly mixed stocks, Palo Alto Networks Inc.’s convertibles and stock sustained a somewhat bigger pull back. The convertibles shed 1.5 points on the day, in tandem with a 2.4% loss in the common shares of the Santa Clara, Calif.-based cybersecurity company – sustained on better-than-expected fiscal quarterly earnings, improved revenue and positive outlook.

Revenue for the cyber security firm was up 18% year over year to $950.5 million. The boost was attributed to several deal wins and increasing adoption of the company’s next-generation security platforms on the rising remote-working trend and perceived need for stronger security.

Fellow Santa Clara, Calif., business Chegg Inc. saw its pair of sister convertibles trade up in line with the underlying shares.

The Chegg 0% convertibles due 2026 traded at 101.375, up 0.7 point. The education technology company priced $1 billion of the zero-coupon bonds last week. Some of the proceeds of those notes, which priced with a 37.5% initial conversion premium, were used to exchanged $172 million of its 0.25% convertibles for $174.7 million in cash and 4.2 million shares.

The Chegg 0.125% convertibles due 2025 traded up nearly a point to 154.95.

Chegg shares rose $2.03, or 2.8% to $75.48. Chegg shares have come off their year-to-date highs, notched earlier this month, but are still dramatically higher than at the start of the year, when they were barely $40.00 per share, or $39.03 on Jan. 2. That represents a year-to-date gain of 48% as of Tuesday.

Despite lower underlying shares, American Airlines Group Inc. saw its 0.5% convertibles due 2025 trade up nearly a point at 98.9. Etsy Inc.’s 0.125% convertibles due 2026 also printed up 0.3 point to 102.93 despite shares pulling lower by nearly 2% by late morning to $126.32.

American’s shares were higher in the early going opening at $13.69 after closing at $13.44 the previous evening. The shares closed on Tuesday at $13.14, which was down 30 cents, or 2.2%.

The airline announced Tuesday that it is cutting 19,000 jobs when federal payroll aid expires in October. The news came after the company announced last week that it is stopping flights to 15 smaller cities across the country. The carrier said that its ticket sales are about 30% of last year due to the impact of the Covid-19 pandemic.

The Fort Worth-based company had pushed for an extension of $25 billion in federal payroll aid to avoid employee furloughs. The carrier is not alone. United Airlines warned last month that the jobs of 36,000 employees are at risk due to the pandemic. Delta Air Lines said on Monday it plans to furlough employees.

Contrary to the hit that airlines have taken due to the coronavirus pandemic, NICE’s stock has surged 57.6% to north of $220.00 since March 11 when it was $142.06 and the World Health Organization classified Covid-19 as a pandemic.

K12 to price

K12 plans to price $300 million of seven-year convertible senior notes under Rule 144A, according to a news release on Tuesday. The deal has a $45 million greenshoe of notes.

The notes are non-callable until Sept. 6, 2024, and then provisionally callable at a price hurdle of 130%.

In connection with the pricing of the notes, K12 expects to enter into one or more privately negotiated capped call transactions with certain of the initial purchasers of the notes and/or their respective affiliates and/or other financial institutions.

A portion of proceeds will be used to fund the cost of entering into the capped call transactions, with remaining proceeds earmarked to repay borrowings under the company’s credit facility and for general corporate purposes.

Liberty/Charter upsized

The new Liberty/Charter convertible was upsized to $500 million of notes from an initially talked $450 million deal size. There is also a $75 million greenshoe, which was upsized from $67.5 million.

The initial exchange price is $857.56 for each share of Charter stock, which represents a 28.6% premium over the closing share price of Charter stock on Monday.

The notes may be redeemed in whole or in part by Liberty from Oct. 5, 2023, and holders can put the debenture on Oct. 5, 2023. They can be settled in stock, cash or a combination of the two.

Proceeds from the Rule 144A issue are expected to be used for general corporate purposes, which may include the repurchase of shares of Liberty Broadband common stock.

Englewood, Colo.-based Liberty Broadband has ownership of TruePosition, Inc., which develops and markets technology for locating wireless phones on a cellular network, and holds an interest in Charter Communications, Inc. and a minority equity investment in Time Warner Cable, Inc.

Mentioned in this article:

American Airlines Group Inc. Nasdaq: AAL

Charter Communications Inc. Nasdaq: CHTR

Chugg Inc. Nasdaq: CHGG

Etsy Inc. Nasdaq: ETSY

K12 Inc. NYSE: LRN

NICE Ltd. Nasdaq: NICE

Palo Alto Networks Inc. Nasdaq: PANQ

Twitter Inc. Nasdaq: TWTR

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