Morning Commentary: Goldman Sachs BDC prices add-on; Arbor, Zillow, Intrexon offerings on tap

By Abigail W. Adams

Portland, Me., June 28 – The pipeline of new deals in the convertibles space remains active with one deal pricing prior to the market open on Thursday and three more set to price after the market close.

Goldman Sachs BDC, Inc. priced an upsized $40 million add-on to its 4.5% convertible notes due 2022 at a public offering price of 99.26 prior to the market open on Thursday.

Arbor Realty Trust Inc. plans to price $100 million of three-year convertible notes after the market close on Thursday with price talk for a coupon of 4.75% to 5.25% and an initial conversion premium of 10% to 15%.

Zillow Group Inc. plans to sell $325 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 1% to 1.5% and an initial conversion premium of 37.5% to 42.5%.

Intrexon Corp. plans to price $200 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 3% to 3.5% and an initial conversion premium of 27.5% to 32.5%.

With the onslaught of new deals over the past week, June is set to end with more than $10 billion in new deal volume.

The pricing of recent deals is weaker than it was a month ago with deals starting to fall to the midpoint of talk, a market source said.

However, the terms “are still exceptional,” a market source said.

Any corporation that has the ability to issue a convertible at the current rates with a call spread to raise the premium to 50% to 100% “are out of their minds not to be borrowing,” a market source said.

The add-on

Goldman Sachs BDC priced an upsized $40 million add-on to its 4.5% convertible notes due 2022 at a public offering price of 99.26 prior to the market open on Thursday.

The add-on lifts the total outstanding amount of the notes to $155 million.

The initial size of the add-on was $32.5 million.

There were “numerous inquiries” into the deal, which included non-holders, a market source said.

The 4.5% notes are an illiquid issue and do not trade often, resulting in a wide range of opinions about the fair market value of the notes.

However, the add-on “came at a tight discount,” a market source said.

Arbor’s deal

Arbor Realty Trust plans to sell $100 million of three-year convertible notes after the market close on Thursday with price talk for a coupon of 4.75% to 5.25% and an initial conversion premium of 10% to 15%.

The deal is being marketed with a credit spread of 325 basis points over Libor and a 16% vol., according to a market source.

The company intends to use the proceeds to enter into privately negotiated transactions with holders of the 6.5% convertible senior notes due 2019 to exchange the 6.5% notes for cash and stock.

Zillow’s deal

Zillow plans to price $325 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 1% to 1.5% and an initial conversion premium of 37.5% to 42.5%.

The deal is being marketed with a credit spread of 225 bps over Libor and a 16% vol., according to a market source.

The notes are being offered concurrently with a $325 million class C capital stock offering.

Intrexon’s deal

Intrexon plans to sell $200 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 3% to 3.5% and an initial conversion premium of 27.5% to 32.5%.

The notes are being marketed with a credit spread of 700 bps over Libor and a 40% vol., according to a market source.

Concurrently with the convertible notes offering, Intrexon is offering $100 million of common stock, which will be loaned to JPMorgan in a share lending agreement.

Intrexon stock has a tight borrow and the share lending agreement will free stock to enable hedging, a market source said.

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