Morning Commentary: Novavax convertible notes offering eyed in otherwise quiet primary

By Abigail W. Adams

Portland, Me., Dec. 15 – The convertibles primary market rolled out the sole offering of the week with Novavax Inc. planning to price $125 million of five-year convertible notes after the market close on Thursday.

The notes looked several points cheap.

However, the borrow was tough, and some sources felt the credit spread was too tight.

The deal was heard to be in the market with assumptions of a 900 basis points credit spread and a 45% vol., a source said.

Assuming a normal borrow, the deal modeled about 9.5 points cheap at the midpoint of talk.

However, assuming borrow costs of 1.5%, the deal looked about 6.5 points cheap.

While the deal modeled cheap, some saw the credit as an issue.

The vaccine maker and Covid-era darling suffered the same downfall as other pandemic-era standouts with stock down 92% from its 52-week high as of Wednesday’s close.

The company has $1.2 billion on its balance sheet; however, it has $325 million outstanding in 3.75% million convertible notes that come due on Feb. 1, 2023.

Concurrently with the convertible notes offering, the company is pricing a secondary offering of up to $125 million of common stock.

While proceeds are earmarked for the repayment of the 3.75% convertible notes, “it doesn’t even cover the full amount,” a source said.

The company has an additional looming payment of $112 million to the U.K. and a high cash burn rate, which makes an additional capital raise in a short period likely, a source said.

Given the cash burn rate, one source pegged the credit spread at 1,700 bps, which reduced the cheapness of the deal to 0.125 point at the midpoint of talk.

With a credit spread of 1,200 bps the deal looked about 5.5 points cheap.

Novavax’s stock sank to a new 52-week low of $13.41 in early trading and was changing hands at $13.73, a decrease of 20.31%, shortly before 11 a.m. ET.

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