Desktop Metal convertible notes jump; Coinbase bonds ‘destroyed’; Unity Software down

By Abigail W. Adams

Portland, Me., May 11 – The first new deal since early April hit the convertibles secondary space on Wednesday.

Desktop Metal Inc. priced a downsized $100 million of five-year convertible notes after the market close on Tuesday.

While the notes were initially slow to trade, activity picked up as the session progressed with the notes making large outright gains.

The new paper hit the secondary space on a choppy session for equities with indexes launching the day with gains but closing with losses as the market digests the latest Consumer Price Index report.

While April’s inflation rate of 8.3% reflected a month-over-month decrease, the figure was still above expectations for a rate of 8.1%.

The Dow Jones industrial average closed Wednesday down 327 points, or 1.02%, the S&P 500 index closed down 1.65%, the Nasdaq Composite index closed down 3.18% and the Russell 2000 index closed down 2.48%.

There was an uptick of trading volume in the space with new paper and earnings-related volatility sparking activity in outstanding issues.

There was $650 million in reported volume about one hour before the market close.

Convertibles issuers continued to see their stock decimated following earnings with Coinbase Global Inc. and Unity Software Inc. the latest to join the trend.

Coinbase’s 0.5% convertible notes due 2026 were “destroyed” on an outright basis, a source said.

Unity Software’s 0% convertible notes due 2026 also hit a fresh low.

Desktop Metal gains

The convertibles primary market cleared its first new deal since early April after the market close on Tuesday.

Desktop Metal priced a downsized $100 million of five-year convertible notes after the market close on Tuesday at par with a coupon of 6% and an initial conversion premium of 25%.

Pricing came in line with widened talk for a coupon of 6% and an initial conversion premium of 25%, according to a market source.

Initial price talk was for a coupon of 5% to 5.5% and an initial conversion premium of 30% to 35%.

The greenshoe was also downsized to $15 million.

The initial size of the offering was $150 million with a greenshoe of $22.5 million.

The deal struggled during bookbuilding with the company a former SPAC whose market cap was destroyed in the market downturn.

However, the deal offered attractive terms.

While the 6% notes were not active in the secondary space early Wednesday, activity picked up as the session progressed with the notes making large gains on an outright basis.

The notes were seen changing hands at 104.5 versus a stock price of $1.42 in the late afternoon.

There was $12 million in reported volume.

Desktop Metal’s stock traded to a high of $1.56 and a low of $1.30 before closing the day at $1.44, an increase of 7.89%.

Stock hit a 52-week low of $1.26 on Tuesday following the deal announcement and disappointing earnings.

While the notes saw some action on Wednesday, the small issue is not expected to trade much with allocations believed to be tight.

“They’re for the true believers,” a source said.

Coinbase ‘destroyed’

Coinbase’s 0.5% convertible notes due 2026 were “destroyed” on an outright basis following earnings, a source said.

The notes sank 10 points outright to change hands at 59 in heavy volume early Wednesday.

They remained on a 59-handle in the late afternoon and were seen trading at 59.125 versus a stock price of $54.22 in the late afternoon.

However, the notes were moving in line dollar-neutral on about a 20% delta, a source said.

The delta the notes were played on largely depended on the holder’s outlook for the company.

Those with a heavier hedge may have fared better.

However, the notes were mostly held by outright accounts.

The notes were now trading with a yield north of 14%.

The notes dominated activity in the secondary space with $75 million in reported volume.

Coinbase’s stock traded to a high of $61.28 and a low of $50.15 before closing the day at $53.72, a decrease of 26.40%.

Stock tanked after a large earnings miss with the company reporting a loss per share versus analyst expectations for a profit.

Coinbase reported a loss per share of $1.26 versus analyst expectations for earnings per share of 91 cents.

Revenue was $1.17 billion versus analyst expectations for revenue of $1.48 billion.

Unity Software lower

Unity Software’s 0% convertible notes due 2026 hit a fresh low in active trading on Wednesday.

The notes were down 2 points outright with stock down more than 35%.

The yield on the notes was now 8.39%.

The notes were changing hands at 69 versus a stock price of $30.96 in the late afternoon.

There was $33 million in reported volume.

Unity Software’s stock traded to a high of $34.75 and a low of $29.30 before closing the day at $30.27, a decrease of 37.11%.

While Unity’s earnings were in line with expectations, the growth stock became the latest to plunge on weak forecasts.

Unity reported a loss per share of 8 cents, which was in line with analyst expectations. Revenue was $320.13 million versus analyst expectations for revenue of $321.17 million.

The video game software development company expects $290 million to $295 million in revenue for the second quarter and $1.35 billion to $1.425 billion in revenue for the full year.

Analysts were expecting $359.65 million in revenue for the current quarter and $1.49 billion in revenue for the fiscal year.

Mentioned in this article:

Coinbase Global Inc. Nasdaq: COIN

Desktop Metal Inc. NYSE: DM

Unity Software Inc. NYSE: U

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