Applied Optoelectronics convertible notes price; PG&E higher; Weibo down outright

By Abigail W. Adams

Portland, Me., Dec. 1 – While the convertibles primary market saw a slow start to the week, it saw a strong finish with $2.28 billion pricing in three deals.

Applied Optoelectronics Inc. capped the week by pricing an upsized $80.2 million of three-year convertible notes after the market close on Thursday.

The refinancing deal was wall-crossed and largely limited to the holders of the company’s outstanding 5% convertible notes due March 15, 2024.

The primary market is expected to remain active in the upcoming week with some deals in the pipeline and the phenomenal rally in small cap stocks on Friday driving issuers to market.

Meanwhile, the secondary space was strong in an active session as the small cap index led gains in equity markets.

The Dow Jones industrial average closed Friday up 295 points, or 0.82%, the S&P 500 index closed up 0.59%, the Nasdaq Composite index closed up 0.55% and the Russell 2000 index closed up 2.96%.

There was no clear reason for the surge in the small cap index on Friday other than buyers looking for opportunities and small caps the underperformers year to date.

There was $84 million in reported convertible bond trading volume about one hour into the session and $463 million on the tape about one hour before the market close.

PG&E Corp.’s new 4.25% convertible notes due 2027 and Weibo Corp.’s 1.375% convertible notes due 2030 (Baa2/BBB) remained active their second day in the secondary space.

While PG&E’s 4.25% convertible notes due 2027 were higher outright and Weibo’s 1.375% convertible notes due 2030 were lower, both issues were largely trading in line dollar-neutral.

Pinduoduo Inc.’s 0% convertible notes due 2025 continued to see heavy volume after their put date with the notes now trading with some call optionality.

Latest pricing

Applied Optoelectronics priced an upsized $80.2 million of three-year convertible notes after the market close on Thursday with a coupon of 5.25% and an initial conversion premium of 15%.

The refinancing deal was wall-crossed and largely limited to the holders of the company’s outstanding 5% convertible notes due March 15, 2024 with four accounts holding 90% of the issue, a source said.

Proceeds from the transaction were used to repurchase $80.2 million in principal of the company’s 5% convertible notes due 2024 for $81.1 million in cash and 466,368 shares in privately negotiated transactions.

Those holders most likely took down the majority of the new issue, which essentially extended the maturity of the company’s convertible debt, a source said.

The new 5.25% convertible notes were not active in the secondary space and are not expected to be with the issue largely tucked away.

PG&E higher

PG&E’s 4.25% convertible notes due 2027, the largest deal of 2023, continued to dominate activity in the secondary space with the notes moving higher on an outright basis.

The notes added about 0.75 point outright with stock up over 1% after wobbling at the open.

The notes were trading just north of 101.25 versus a stock price of $17.17 early in the session, according to a market source.

They were trading at 101.875 versus a stock price of $17.38 in the late afternoon.

The notes were moving in line on a dollar-neutral, or hedged, basis, a source said.

There was $32 million in reported volume.

Shares of PG&E traded to a low of $17.05 before closing at the intraday high of $17.45, up 1.63%.

PG&E’s $1.9 billion offering ranks as the largest of 2023. The notes played to strong demand during bookbuilding and made healthy outright and dollar-neutral gains on their aftermarket debut on Thursday.

Weibo lower

Weibo’s 1.375% convertible notes due 2030 were moving lower alongside stock on Friday although the notes were unchanged to slightly stronger on hedge, a source said.

The 1.375% notes were down 1.5 points outright with equity down more than 2% in intraday activity.

They were trading at 101.5 versus a stock price of $9.77 in the late afternoon, according to a market source.

There was $16 million in reported volume.

Weibo’s American Depositary Shares traded to a high of $10.14 and a low of $9.72 before closing at $9.92, a decrease of 1.88%.

Weibo’s convertible notes also played to strong demand during book building with the overnight offering modeling double digits cheap and the notes’ investment-grade rating adding to their attractiveness, a source said.

The notes have made strong outright and dollar-neutral gains since their Thursday aftermarket debut.

Pinduoduo active

Pinduoduo’s 0% convertible notes due 2025 continued to see heavy volume on Friday after the passing of the notes’ put date, a sign that a sizable chunk of the issue remains outstanding, a source said.

After the explosion of the Shanghai-based e-commerce company’s equity over the past six months, the 0% notes now carry a balanced profile and are trading with some call optionality.

The 0% notes added another 1 point outright with the company’s American Depositary Shares down more than 1%.

They were trading at 102.875 versus an equity price of $144.99 in the late afternoon.

The notes now move on about a 40% delta.

Pinduoduo’s ADSs traded to a low of $142.44 and a high of $146.30 before closing at $145.27, off 1.47%.

Pinduoduo’s 0% convertible notes have long been a yield-to-put play with the notes’ put date of Dec. 1, 2023 now passed.

However, with the improvement in the company’s fundamentals and cash on the balance sheet, market players were more comfortable with holding them until their maturity.

Mentioned in this article:

Applied Optoelectronics Inc. Nasdaq: AAOI

PG&E Corp. NYSE: PCG

Pinduoduo Inc. Nasdaq: PDD

Weibo Corp. Nasdaq: WB

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