Norwegian Cruise Line plays to heavy demand; Snap gains continue; Affirm volatile

By Abigail W. Adams

Portland, Me., Feb. 10 – The convertibles primary market remained active with one new offering on deck on a volatile day for equities.

NCL Corp. Ltd., a subsidiary of Norwegian Cruise Line Holdings Ltd., plans to price $435 million of five-year exchangeable notes after the market close on Thursday.

The deal played to heavy demand and is believed to be pricing on the rich end of talk.

Meanwhile, the convertibles secondary space was active on a volatile day for equities following the latest U.S. Consumer Price Index report and batch of earnings.

The CPI annual increase of 7.5%, which came in greater than the 7.2% expected, sent the Treasury market into a tailspin with the 10-year Treasury yield shooting past 2%.

The 10-year Treasury yield climbed as high as 2.057% before closing the day at 2.033%.

While equity indexes launched the day deep in the red, optimism surrounding earnings pushed some into positive territory.

However, indexes again dove deep into the red following a late day sell-off.

The Dow Jones industrial average closed the day down 526 points, or 1.47%, the S&P 500 index closed down 1.81%, and the Nasdaq Composite closed down 2.10%.

While the Russell 2000 index was up 0.70% shortly before 11 a.m. ET, it closed the day down 1.55%.

There was $80 million in reported convertibles trading volume about one hour into the session and $622 million about one hour before the market close.

Snap Inc.’s 0.125% convertible notes due 2028 continuing to dominate the tape with the new paper continuing to gain in active trading.

Affirm Holdings Inc.’s 0% convertible notes due 2026 encapsulated the volatility of Thursday’s session with the notes up alongside stock early in the session before tanking as stock dropped double digits following the early release of earnings.

NCL eyed

Norwegian Cruise Line plans to price $435 million of five-year exchangeable notes after the market close on Thursday with price talk for a coupon of 2.5% to 3% and an initial exchange premium of 47.5% to 52.5%.

Underwriters were marketing the deal with assumptions of 550 basis points over Libor and a 45% vol., according to a market source.

Using those assumptions, the deal looked 3.19 points cheap at the midpoint of talk, a source said.

However, other sources felt the credit spread was aggressive.

Using a credit spread of 600 bps and a 45% vol. reduced the cheapness of the deal to about 1 point at the midpoint of talk, a source said.

While proceeds will be used to redeem the company’s outstanding 12.25% senior secured notes due 2024 and 10.25% senior secured notes due 2026, it is still a huge capital raise for a highly leveraged company with a $9.8 billion market cap, a source said.

However, the deal played to heavy demand during bookbuilding with talk tightening to a coupon range of 2.5% to 2.75% and an initial conversion premium range of 50% to 52.5%, sources said.

There were more than 100 accounts involved in the offering with strong interest from cross-over credit investors.

The ease of access to the high-yield market helped bolster demand for the convertible notes, a source said.

The exchangeable notes are pricing concurrently with an offering of $1 billion senior secured notes due 2027 and $600 million senior notes due 2029.

Snap in focus amid gains

Snap’s new 0.125% convertible notes due 2028 continued to dominate activity in the secondary space with the notes holding onto their gains despite the volatility in equities.

The 0.125% notes were trading at 104.75 versus a stock price of $41.11 early in the session.

They were changing hands at 104.25 versus a stock price of $40.64 in the late afternoon.

There was $30 million in reported volume.

The notes had strong interest from overseas buyers, a source said.

Snap’s stock traded to a low of $38.50 and a high of $41.97 before closing the day at $40.62, an increase of 0.74%.

The notes jumped about 4 points outright and expanded 1.5 points dollar-neutral on their secondary market debut.

Affirm active

Affirm’s 0% convertible notes due 2026 encapsulated the volatility of Thursday’s session with stock up 12% until mid-session when stock plummeted more than 20% due to the accidental early release of its second-quarter earnings report.

Affirm’s 0% convertible notes were up about 2 points outright to an 83-handle until roughly 3 p.m. ET when they dropped.

The notes were changing hands at 78.375 versus a stock price of $61.45 in the late afternoon.

They closed the day wrapped around 77.5.

Affirm’s stock traded to a high of $83.57 and a low of $50 before closing the day at $58.68, a decrease of 21.42%.

Optimism surrounding Affirm’s earnings drove the stock up about 18.5% between Monday and Wednesday’s session.

While stock continued to ride its upward momentum early in the session, the accidental early release of its earnings sent shares plummeting, causing a halt to trading activity.

Affirm reported a loss per share of 57 cents versus analyst expectations for a loss per share of 32 cents.

Revenue was $361 million versus analyst expectations for revenue of $329 million.

However, third-quarter revenue projections of $325 million to $335 million also missed analyst expectations for revenue of $335.5 million.

Mentioned in this article:

Affirm Holdings Inc. Nasdaq: AFRM

Norwegian Cruise Line Holdings Ltd. NYSE: NCLH

Snap Inc. NYSE: SNAP

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