Morning Commentary: Cutera, InterDigital convertible notes price, trade mixed on debut

By Abigail W. Adams

Portland, Me., May 25 – The convertibles secondary space was active early Wednesday as $600 million in new supply entered the market.

Cutera Inc. priced $200 million of six-year convertible notes and InterDigital, Inc. priced an upsized $400 million of five-year convertible notes after the market close on Tuesday.

The new paper came as refinancings with both companies repurchasing or exchanging for cash and shares existing notes.

Both deals priced as volatility continued to roil risk assets.

The timing of the paper to price in May has been a surprise to some with deals launching as equity markets suffered deep losses.

However, with the current market climate “what would make the timing any better,” a source said.

The Federal Reserve’s balance sheet run-off is set to commence in June and another 50 bps rate increase is expected at the June 14 to June 15 meeting.

While equity indexes wavered between gains and losses after the opening bell, they rallied as the session progressed.

The Dow Jones industrial average was up 151 points, or 0.48%, the S&P 500 index was up 0.67%, the Nasdaq Composite index was up 0.88% and the Russell 2000 index was up 1.54% shortly before 11 a.m. ET.

The secondary space had a firmer tone on Wednesday with the decline in the 10-year Treasury yield helping to bolster risk assets, a source said.

However, the new deals to price were mixed on debut with new paper from Cutera falling flat while InterDigital saw a large dollar-neutral expansion.

Cutera flat

Cutera priced $200 million of six-year convertible notes after the market close on Tuesday at par at the cheap end of talk with a coupon of 2.25% and an initial conversion premium of 27.5%.

Price talk was for a coupon of 1.75% to 2.25% and an initial conversion premium of 27.5% to 32.5%.

Cutera entered into privately negotiated transactions with holders of its 2.25% convertible notes due 2026 to exchange $69.1 million in principal for $45.8 million in cash and 1.4 million shares.

The new paper was volatile on an outright basis with the notes trading as low as 98.5 after the opening bell.

However, the notes improved alongside stock and were changing hands between 99 and par about one hour into the session.

The notes were flat dollar-neutral, a source said.

Cutera’s stock traded as low as $39.58 after the opening bell and was changing hands at $41.23, a decrease of 0.19%, shortly before 11 a.m. ET.

InterDigital expands

InterDigital priced an upsized $400 million of five-year convertible notes after the market close on Tuesday at par with a coupon of 3.5% and an initial conversion premium of 27.5%.

Pricing came in line with talk for a fixed coupon of 3.5% and a fixed initial conversion premium of 27.5%.

The greenshoe was also upsized to $60 million.

The initial size of the offering was $350 million with a greenshoe of $52.5 million.

Proceeds were used to repurchase $273.8 million of the principal amount of the company’s 2% senior notes due 2024 for $285.2 million in privately negotiated transactions.

The company also repurchased $75 million of its common stock for $60.78 per share, the closing price on May 24.

The new paper was making large gains on an outright and dollar-neutral basis in early trading.

The 3.5% notes traded as high as 102.375 shortly after the opening bell.

The notes were changing hands at 101.375 about one hour into the session with stock in negative territory.

The notes expanded a couple of points dollar-neutral, a source said.

InterDigital’s stock was trading at $59.38, a decrease of 2.3%, shortly before 11 a.m. ET.

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