Bloom Energy convertibles volatile outright, expand dollar-neutral; Chegg notes gain

By Abigail W. Adams

Portland, Me., May 12 – The convertibles primary market capped the third busiest week of the year for new deal activity with Bloom Energy Corp.’s upsized $550 million sale of five-year green convertible notes.

The deal played to heavy demand during book building with allocations tight, a source said.

Bloom Energy’s offering lifted the primary market’s weekly tally to $2.775 billion, which priced over five deals – the third largest week of 2023 by dollar amount and second busiest week by number of transactions.

The primary market’s active week follows the May 1 week, which was the second busiest week of the year for new deal activity.

The steady flow of new deal activity is expected to continue with issuers emerging from earnings season blackouts and beginning to pull the trigger on capital raises.

“The market is open,” a source said.

The new deal activity comes amid continued uncertainty in markets with all eyes on debt ceiling negotiations.

As markets stare down the specter of a government default, issuers may rush their deals to the market ahead of June 1 and what one source called a potential apocalyptic event.

Equity indexes were dragged into the red after a strong start to the day with the lack of progress in debt ceiling negotiations weighing on risk appetite.

However, indexes gained strength into the close to end the day well off their intraday lows.

There were few signs of panic in the markets, which have not yet treated a government default as a serious possibility, a source said.

The Dow Jones industrial average closed Monday down 9 points, or 0.03%, the S&P 500 index closed down 0.16%, the Nasdaq Composite index closed off 0.35% and the Russell 2000 index finished 0.38% lower.

Bloom Energy’s new convertible notes dominated activity in the space with the notes accounting for nearly one-third of the $515 million in reported convertible bond trading volume about one hour before the market close.

The notes were volatile on an outright basis with the notes skyrocketing out of the gate but sinking below par by the market close.

While the notes gave back some of their early dollar-neutral gains, they still closed with a large expansion.

Outside of Bloom Energy, Chegg, Inc.’s convertible notes were active with the notes lifted by a company buyback which eliminated their post-earnings losses.

Bloom Energy up on hedge

Bloom Energy priced an upsized $550 million of five-year green convertible notes after the market close on Thursday at par with a coupon of 3% and an initial conversion premium of 42.5%.

The notes priced in the middle of talk for a coupon of 2.75% to 3.25% and at the rich end of talk for an initial conversion premium of 37.5% to 42.5%, according to a market source.

There was strong demand for the offering with allocations tight, a source said.

The notes were volatile on an outright basis.

They skyrocketed out of the gate to trade north of 103 early in the session.

However, they dropped as stock cratered.

The notes traded as low as 98.75 but fought back to par heading into the close.

The notes expanded as much as 2.5 points dollar-neutral in early trading.

While they gave back some of those gains, they held onto a 1.5 points dollar-neutral expansion into the close.

“It may have come off a little, but on swap, it’s still a nice winner,” a source said.

There was $151 million in reported volume.

Bloom Energy’s stock traded to a low of $12.33 and a high of $13.26 before closing at $12.72, a decrease of 3.82%.

Chegg’s buyback

Chegg’s convertible notes were lifted in active trade after the company privately negotiated a buyback of its 0.125% convertible notes due 2025 and 0% convertible notes due 2026.

The 0.125% convertible notes due 2025 gained 3 points outright to trade as high as 89.

There was $15 million in reported volume.

The 0% convertible notes due 2026 also gained 3 points outright to 75.

There was $16 million in reported volume.

Chegg’s stock traded to a low of $9.61 and a high of $9.94 before closing at $9.71, an increase of 2.48%.

The education technology company announced on Friday that it had entered into privately negotiated transactions to purchase $235.6 million in principal of its 0.125% convertible notes due 2025 for $209.7 million and $66.2 million in principal of the 0% convertible notes due 2026 for $50.3 million.

The buybacks eliminated the convertible notes’ post-earnings losses with the notes now flat after cratering on May 2 when Chegg’s stock was sliced in half.

Mentioned in this article:

Bloom Energy Corp. NYSE: BE

Chegg, Inc. NYSE: CHGG

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