InterDigital on tap; Cutera convertible offering eyed; Snap in focus as stock craters

By Abigail W. Adams

Portland, Me., May 24 – While volatility remained high in equity markets on Tuesday, the convertibles primary market again reared its head with two new offerings on deck.

In an overnight offering, InterDigital, Inc. plans to price $350 million of five-year convertible notes after the market close on Tuesday.

Cutera Inc. plans to sell $200 million of six-year convertible notes after the market close on Tuesday.

Cutera’s deal looked cheap based on underwriters’ assumptions, a source said.

While the recent convertible deals have been wall-crossed and largely spoken for before launching, Cutera’s offering was only partially spoken for at its launch, sources said.

The new deals come as volatility continues to roil equities.

Equity indexes launched Tuesday’s session deep in the red early; however, a surge of late-day buying lifted them off their lows, and they closed the day mixed.

The Dow Jones industrial average climbed into positive territory by the end of Tuesday’s session and ended the day up 48 points, or 0.15%.

However, the S&P 500 index closed down 0.81%, the Nasdaq Composite index closed down 2.35% and the Russell 2000 index closing down 1.56%.

There was $645 million of convertibles trading on the tape shortly before the market close with one name accounting for nearly one-quarter of the total recorded volume in the space.

Snap Inc. was the name of the day on Tuesday with the social media company’s warning about the impact of macroeconomic conditions on future earnings dragging down broader markets.

Snap’s four tranches saw heavy volume as stock got cut nearly in half following the company’s dire warning.

While the notes hit all-time lows on an outright basis, they were moving in line to expanding dollar-neutral based on the delta used.

InterDigital’s overnight

InterDigital plans to price $350 million of five-year convertible notes after the market close on Tuesday with price talk for a fixed coupon of 3.5% and a fixed initial conversion premium of 27.5%, according to a market source.

BofA Securities Inc., Jefferies LLC, Barclays, Deutsche Bank Securities Inc. and Goldman Sachs & Co. LLC are bookrunners for the Rule 144A offering, which carries a greenshoe of $52.5 million.

The company plans to use proceeds to repurchase a portion of its 2% senior notes due 2024 in privately negotiated transactions and up to $100 million in common stock.

Cutera eyed

Cutera plans to price $200 million of six-year convertible notes after the market close on Tuesday with price talk for a coupon of 1.75% to 2.25% and an initial conversion premium of 27.5% to 32.5%.

The deal was being marketed with assumptions of 600 basis points over Libor and a 45% vol., according to a market source.

Using those assumptions, the deal looked 2.85 points to 3 points cheap at the midpoint of talk, a source said.

While Cutera’s stock was still trading rich, according to some sources, the company was seen as a solid credit.

The primary market was “dipping its toe in” with a serial convertible issuer, a source said.

Proceeds will be used, in part, to exchange $69.1 million in principal of Cutera’s 2.25% convertible notes due 2026 for cash and shares.

The 2.25% convertible notes currently have $138.25 million outstanding.

The deal was only partially wall-crossed and launched before books were complete, sources said.

However, there was little doubt that the deal would get done despite continued carnage in the secondary space.

There was some “financial engineering” involved in the new offering with holders of the outstanding issue able to sell it back to the company at a premium, a source said.

While the issue was small, the pricing of recent convertible issuers was becoming increasingly attractive.

However, it will take a new issuer with a sizable offering coming to the market to determine whether or not the secondary space needs to undergo a further repricing, a source said.

Snap’s warning

Snap was the name of the day on Tuesday with the social media company’s warning about the impact of macroeconomic conditions on future earnings sparking a sell-off in broader equity markets.

Snap’s four tranches of convertible notes saw heavy volume and sank to new outright lows as the company’s stock fell by more than 40%.

Snap’s 0.75% convertible notes due 2026 sank 30 points outright.

The notes were changing hands at 94.75 versus a stock price of $12.72 shortly before the market close.

There was $53.5 million in reported volume.

The 0% convertible notes due 2027 were down about 5 points outright.

The notes were trading at 71.25 versus a stock price of $12.69 in the late afternoon. The yield on the notes was 7%.

There was $50 million in reported volume.

The 0.125% convertible notes due 2028 sank more than 10 points outright.

The notes were changing hands just north of 69.75 versus a stock price of $12.61 in the late afternoon with a yield of about 6.5%.

There was $34 million in reported volume.

Snap’s 0.25% convertible notes sank 33 points outright.

They were seen at 97.75 versus a stock price of $12.66 heading into the market close.

There was $27 million in reported volume.

While Snap’s convertible notes hit new outright lows, they “theoretically” should have expanded on hedge, a source said.

However, the extent of the expansion would largely depend on the hedge market players used.

Snap’s stock traded to a high of $14.57 and a low of $12.55 before closing the day at $12.79, a decrease of 43.08%.

Stock plunged after the company lowered the guidance that was issued just one month earlier due a to macroeconomic environment that has “deteriorated further and faster than anticipated,” the company said in a press release.

The company announced that revenue and adjusted EBITDA for the second quarter will be below the low end of its previously announced range.

Mentioned in this article:

Cutera Inc. Nasdaq: CUTR

InterDigital, Inc. Nasdaq: IDCC

Snap Inc. NYSE: SNAP

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