Morning Commentary: $2.33 billion of convertibles hit secondary; Etsy, Sabre eyed

By Abigail W. Adams

Portland, Me., Aug. 19 – The convertibles primary market continued to churn out new deals at a record-setting pace with five deals totaling $2.33 billion pricing after the market close on Tuesday and two deals totaling $900 million set to price after the market close on Wednesday.

New paper from Middleby Corp., Cinemark Holdings Inc., Chegg Inc., Hannon Armstrong Sustainable Infrastructure Capital Inc. and Antero Resources Corp. made their aftermarket debut on Wednesday.

The majority of new paper was performing well in the secondary space.

While the secondary space was deluged with new paper, market players were also eyeing the new deals in the works from Etsy Inc. and Sabre Corp.

Etsy’s latest offering did not appeal to some sources, who found the terms unattractive.

Etsy eyed

Etsy plans to price $650 million of seven-year convertible notes after the market close on Wednesday with price talk for a coupon of 0.125% to 0.625% and an initial conversion premium of 47.5% to 52.5%.

The deal was heard to be in the market with assumptions of 300 basis points over Libor and a 40% vol., according to a market source.

Using those assumptions, the fair value of the deal modeled out to 100.31, which was among the tightest of the recent deals to hit the market.

There was not much cheapness in the deal, and the terms were optically unattractive with a low coupon, high premium and long maturity.

“Etsy bitsy terms,” a source said.

However, the notes are non-callable, which was a positive for the deal, the source said.

While the deal left much to be desired, Etsy is a repeat issuer of convertible notes and has made investors a lot of money in the past.

A portion of the proceeds from the handmade and vintage craft e-commerce company will be used to repurchase a portion of the 0% convertible notes due 2023 in privately negotiated transactions.

Sabre on deck

Sabre plans to price $250 million of three-year $100-par series A mandatory convertible preferred stock after the market close on Wednesday with price talk for a dividend of 6.25% to 6.75% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

Middleby trades up

Middleby priced an upsized $650 million five-year convertible notes after the market close on Tuesday at par with a coupon of 1% and an initial conversion premium of 33%.

Pricing came at the midpoint of talk for a coupon of 0.75% to 1.25% and toward the midpoint of talk for an initial conversion premium of 30% to 35%, according to a market source.

The greenshoe was also upsized to $97.5 million.

The initial size of the deal was $550 million with a greenshoe of $82.5 million.

The new paper was performing well in the secondary space.

The 1% notes were seen trading around 101.75 with stock off about 1%, a source said.

Middleby stock was changing hands at $95.86, a decrease of 0.88%, shortly before 11 a.m. ET.

Cinemark trades up

Cinemark Holdings priced $400 million of five-year convertible notes after the market close on Tuesday at par with a coupon of 4.5% and an initial conversion premium of 30%.

Pricing came at the rich end of talk for a coupon of 4.5% to 5% and at the midpoint of talk for an initial conversion premium of 27.5% to 32.5%, according to a market source.

The initial terms of the deal included a two-year provisional call. However, terms were revised with the notes now non-callable.

The 4.5% notes were performing well in the secondary space.

They traded up to 102 with stock up early in the session.

However, Cinemark stock gave back its gains as the session progressed and was changing hands at $11.02, a decrease of 0.14%, shortly before 11 a.m. ET.

Chegg in focus

Chegg priced an upsized $900 million of six-year convertible notes after the market close on Tuesday at par with a coupon of 0% and an initial conversion premium of 37.5%.

Pricing came at the rich end of revised price talk for a coupon of 0% to 0.125% and in line with revised talk for an initial conversion premium of 37.5%, according to a market source.

Talk tightened from the initial price talk of a coupon of 0% to 0.5% and an initial conversion premium of 32.5% to 37.5%.

The new paper dominated activity in the secondary space and was performing well on debut.

The notes traded up to 102.25 with stock down more than 1%.

Chegg stock was changing hands at $77.14, a decrease of 1.38%, shortly before 11 a.m. ET.

Hannon Armstrong prices

Hannon Armstrong priced $125 million of three-year convertible notes (BB+/BB+) after the market close on Tuesday at par with a coupon of 0% and an initial conversion premium of 27.5%.

Pricing came in line with talk for a coupon of 0% and at the midpoint of talk for an initial conversion premium of 25% to 30%, according to a market source.

The notes were changing hands around 101 early in the session with stock up more than 2%.

Hannon Armstrong stock was $38.80, an increase of 2.29%, shortly before 11 a.m. ET.

Antero prices cheap

Antero Resources priced $250 million of six-year convertible notes after the market close on Tuesday at the cheap end of talk with a coupon of 4.25% and an initial conversion premium of 20%.

Price talk was for a coupon of 3.75% to 4.25% and an initial conversion premium of 20% to 25%, according to a market source.

The deal was slow to trade early in Wednesday’s session.

There were a few odd-lot trades on a 99-handle, which was most likely flippers punting the deal, a source said.

The only million-plus trade early in the session was at 100.25.

The deal was well-placed, a source said.

Antero Resources stock was changing hands at $3.58, a decrease of 0.83%.

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