IAC’s $1 billion two-tranche exchangeables expand; Veoneer on tap; Pure Storage down

By Abigail W. Adams

Portland, Me., May 22 – The convertibles secondary space was active on Wednesday with $1 billion of new paper hitting the space.

IAC/InterActive Corp. priced a $1 billion two-tranche offering of exchangeable notes after the market close on Tuesday. While both tranches were largely wrapped around par, they expanded on a dollar-neutral basis.

The new paper from IAC was in focus on Wednesday. However, it will not be the only deal of the week.

Veoneer, Inc. plans to price $150 million of five-year convertible notes after the market close on Wednesday.

While the deal modeled cheap, the borrow on the stock is an issue and the credit is dicey, sources said.

Outside of the new paper, Pure Storage Inc.’s 0.125% convertible notes due 2023 dropped on an outright basis but were expanded dollar-neutral as stock tanked following a large earnings miss and weak guidance.

IAC in focus

IAC’s $1 billion two-tranche offering of exchangeable notes was in focus in the secondary space with both tranches wrapped around par on an outright basis but expanding dollar-neutral, sources said.

The offering priced after the market close on Tuesday and consisted of a $500 million tranche of seven-year notes, which priced at par to yield 0.875% with an initial exchange premium of 32.5%.

Pricing came at the rich end of revised price talk for a coupon of 0.875% to 1% and an initial exchange premium of 32.5%, according to a market source.

Initial price talk was for a coupon of 1% to 1.5% with an initial exchange premium of 27.5% to 32.5%.

IAC also priced a $500 million tranche of exchangeable notes due 2030 at par with a coupon of 2% and an initial exchange premium of 27.5%.

Pricing also fell on the rich end of revised price talk for a coupon of 2% to 2.25% and an initial exchange premium of 27.5%, according to a market source.

Initial talk was for a coupon of 1.75% to 2.25% with an initial exchange premium of 27.5% to 32.5%.

The new paper dominated activity in the secondary space.

Both tranches were largely wrapped around par in active trading, a market source said.

The 0.875% exchangeable notes due 2026 were trading in a range of 99.75 to 100.25 early in the session and continued to trade around par in the afternoon, sources said.

They were up about 0.5 point on a dollar-neutral, or hedged, basis, a market source said.

The 2% exchangeable notes due 2030 were also largely trading at par.

They were expanded about 0.75 point dollar-neutral with stock down.

The new paper accounted for the lion’s share of trading volume in the secondary space on Wednesday.

The 0.875% exchangeable notes had $114 million in reported volume by the mid-afternoon and the 2% notes had $87 million in reported volume, which was more than one-third of the $527 million on the tape by the late afternoon.

Meanwhile, IAC’s outstanding 0.875% convertible notes due 2022 were also active. The notes were changing hands around 155.5 in the late afternoon.

However, the 0.875% notes were largely unchanged after a 1 point contraction on Tuesday, a market source said.

IAC stock was off on Wednesday. Stock traded as low as $224.07 before closing the day at $226.42, a decrease of 0.91%.

Veoneer on tap

While new paper from IAC dominated the secondary space, the primary market was preparing another new deal.

Veoneer plans to price $150 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 3.75% to 4.25% and an initial conversion premium of 25% to 30%.

The deal was heard to be in the market with a credit spread of 800 basis points over Libor and a 40% vol., according to a market source.

The deal modeled about 6 points cheap at the midpoint of talk, one source said.

While the deal modeled cheap, the borrow on the stock was difficult, another source said.

The credit was also dicey, sources said.

The deal is pricing concurrently with a $350 million common stock offering, which carries a greenshoe of $52.5 million.

Pure Storage’s earnings

While new paper was the focus of the secondary space on Wednesday, Pure Storage’s 0.125% convertible notes due 2023 were active as stock tanked after a disappointing earnings report.

While the notes dropped on an outright basis, they expanded dollar-neutral, a market source said.

The 0.125% notes traded down 6 points outright, a market source said.

They were seen changing hands at 93 in the late afternoon after closing the previous session at 99.

However, the notes expanded 1 point dollar-neutral on the way down.

While expanding on hedge, the majority of holders of the 0.125% notes were outright accounts, a market source said.

The notes have always traded slightly rich, a market source said. “Outrights are giving up on the move down,” the source said.

Pure Storage stock tanked on Wednesday, closing the day at $15.44, a decrease of 25.05%.

Stock cratered after a first-quarter earnings miss and weak guidance.

Pure Storage reported a loss per share of 11 cents versus analyst expectations for a loss per share of 8 cents.

Revenue was $326.7 million versus analyst expectations for revenue of $333.1 million.

The data storage hardware and software products maker also lowered its full-year guidance to $1.70 billion to $1.77 billion from its previous guidance of $1.74 billion to $1.81 billion, TheStreet.com reported.

Mentioned in this article:

IAC/InterActive Corp. Nasdaq: IAC

Veoneer, Inc. NYSE: VNE

Pure Storage Inc. NYSE: PSTG

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