Morning Commentary: RingCentral, Canadian Solar, PROS Holdings convertibles on tap

By Abigail W. Adams

Portland, Me., Sept. 10 – The convertibles primary market returned to action, rolling out three deals totaling $950 million which are slated to price after the market close.

RingCentral Inc. plans to price $600 million of convertible notes due March 15, 2026, Canadian Solar Inc. plans to price $200 million five-year convertible notes and PROS Holdings, Inc. plans to sell $150 million of seven-year convertible notes.

While Canadian Solar and PROS Holdings looked cheap, RingCentral did not, sources said.

However, RingCentral is a well-known name in the convertibles universe. With the fundamentals of the company strong, the deal is expected to do well.

RingCentral’s refinancing

RingCentral plans to price $600 million of convertible notes due March 15, 2026 after the market close on Thursday at par with price talk for a fixed coupon of 0% and an initial conversion premium of 50% to 55%, according to a market source.

The deal was heard to be in the market with assumptions of 275 basis points over Libor and a 42% vol.

Using those assumptions, the deal looked about 0.43 point cheap at the midpoint of talk, sources said.

While RingCentral’s offering had some of the tightest pricing of recent deals, the company can get away with a par value, a source said.

The cloud communications software company’s stock is a “10-bagger” that has increased 10-fold in the past three years, a source said.

It was trading around $27 in 2017.

The average target price on the stock is $339 with the majority of analysts rating the company as a buy.

“It’s hard to say it shouldn’t get a little equity kicker value,” a source said. The offering was attractive because of the fundamentals of the company.

RingCentral is the latest company to use proceeds from a new offering to refinance its outstanding convertible debt.

Proceeds will be used to refund the repurchase of a portion of its 0% convertible notes due 2023 in privately negotiated transactions.

The 0% convertible notes due 2023 currently trade at triple par.

Typically, companies pay a premium to retire its outstanding debt.

The “kiss” involved in the buyback of the old notes will also help drive demand for RingCentral’s new offering, sources said.

Canadian Solar eyed

Canadian Solar plans to price $200 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 2.25% to 2.75% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The deal was heard to be marketed with assumptions of 750 bps over Libor and a 40% vol.

With a 50 bps borrow, the deal looked almost 6 points cheap at the midpoint of talk, one source said.

Other sources saw the deal as 4.2 points cheap.

PROS Holdings on deck

In an overnight deal, PROS Holdings plans to price $150 million of seven-year convertible notes after the market close on Thursday with price talk for a coupon of 2% to 2.5% and an initial conversion premium of 30% to 35%, according to a market source.

The deal was heard to be in the market with assumptions of 750 bps over Libor and a 40% vol.

Using those assumptions, the deal looked about 1.5 points cheap at the midpoint of talk, a source said.

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