Chefs’ Warehouse, Cutera, NextEra on tap; EZCorp, Uniti eyed; Axon, Herbalife mixed

By Abigail W. Adams

Portland, Me., Dec. 7 – The convertibles primary continued to unleash deals at a head-spinning pace with a $250 million offering slated to price post-close on Thursday, $1.125 billion set to price post-close on Wednesday and $850 million in new supply entering the secondary space.

Chefs’ Warehouse Inc. plans to price $250 million of six-year convertible notes after the market close on Thursday with price talk for a coupon of 2.125% to 2.625% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

Jefferies LLC and BMO Capital Markets Corp. are bookrunners for the Rule 144A offering, which carries a greenshoe of $37.5 million.

In overnight offerings set to price shortly after launching, Cutera Inc. plans to price $100 million of seven-year convertible notes and NextEra Energy Partners LP plans to sell $500 million of 3.5-year convertible notes after the market close Wednesday.

Uniti Group Inc.’s $300 million offering of five-year convertible notes and EZCorp Inc.’s $175 million of seven-year convertible notes are also slated for post-close on Wednesday.

Uniti and EZCorp’s offerings are both refinancing deals, which were optically attractive; however, they modeled tighter than the majority of recent deals to clear the primary market.

The deals also did not spark the same level of investor interest that recent deals from debut convertible issuers, such as Axon Enterprise Inc., did.

“Refinancings aren’t very exciting,” a source said.

Meanwhile, the secondary space remained active with new paper from Axon and Herbalife Nutrition Ltd. making its aftermarket debut.

The strong demand for Axon’s paper, which drove pricing through initial talk, followed the notes into the secondary space.

While the notes were up on an outright and dollar-neutral basis, the large upsize and tight pricing took “some juice” out of the deal, a source said.

New paper from Herbalife struggled outright but performed well on hedge with the notes expanding dollar-neutral.

Overnights

NextEra Energy Partners plans to price $500 million of 3.5-year convertible notes after the market close on Wednesday with price talk for a fixed coupon of 2.5%, a fixed initial conversion premium of 20% and a reoffer price of 98 to 98.25, according to a market source.

The deal was heard to be in the market with assumptions of a 225 basis point credit spread and a 28% vol., a source said.

Using those assumptions, the deal looked about 1 point cheap at the midpoint of talk.

Books on the deal were closing at 6:30 p.m. ET, a source said.

Cutera plans to price $100 million of seven-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 15% to 20%.

The deal was heard to be in the market with assumptions of a 750 bps spread and a 42% vol., a source said.

Uniti eyed

Uniti Group plans to price $300 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 7% to 7.5% and an initial conversion premium of 20% to 25%.

Sources pegged assumptions as either a 900 bps credit spread and a 40% vol. or a 900 bps spread and a 42% vol.

Using a 40% vol., the deal looked 0.88 to 1.34 points cheap at the midpoint of talk, sources said.

However, the valuation of the deal cheapened dramatically when using a wider vol.

Using a 42% vol., the deal looked 1.625 points to 2.15 points cheap at the midpoint of talk.

The large conversion ratio made the notes valuation particularly sensitive to vol. inputs, a source said.

While the notes carry a hefty coupon, the REIT’s common stock carries an annualized dividend of 9.5%.

“REIT convert pricing is always interesting,” a source said.

The deal was heard to be wall-crossed.

It is coming as a refinancing with proceeds to be used to repurchase some or all of the $345 million outstanding 4% exchangeable notes due 2024 through open-market transactions, redemptions or tender offers.

EZCorp in focus

EZCorp plans to price $175 million of seven-year convertible notes after the market close on Wednesday with price talk for a coupon of 3.5% to 4% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of an 800 bps credit spread and a 35% vol., a source said.

Using those assumptions, sources pegged the deal between 0.54 point to 1.5 points cheap at the midpoint of talk, sources said.

The valuation was significantly tighter than the majority of recent deals to clear the primary market, with most modeling about 3 points cheap at the midpoint of talk.

However, the valuation may have factored in an anticipated drop in stock.

EZCorp’s stock was off more than 15% following the deal announcement.

The deal is a refinancing with proceeds to be used to repurchase a portion of its 2.875% convertible notes due 2024 and/or its 2.375% convertible notes due 2025 in privately negotiated transactions.

There was some investor pushback to the company issuing new convertible debt to refinance the outstanding notes with some arguing bank debt would have been more appropriate, a source said.

The seven-year duration was also a drawback to the offering, sources said.

Axon jumps on debut

Axon priced an upsized $600 million of five-year convertible notes after the market close on Tuesday at par with a coupon of 0.5% and an initial conversion premium of 35%.

The deal played to heavy demand during bookbuilding with pricing coming at the rich end of price talk for a coupon of 0.5% to 1% and richer than talk for an initial conversion premium of 27.5% to 32.5%, according to a market source.

The greenshoe was also upsized to $90 million.

The initial size of the offering was $500 million with a greenshoe of $75 million.

While the notes made large gains on an outright and dollar-neutral basis, the upsize and tight pricing took “some juice” out of the notes, a source said.

The notes were hot out of the gate and trading in the 101.75 to 102.75 context on an outright basis.

They were changing hands at 101.75 versus a stock price of $169.85 in the late afternoon.

They expanded 1.25 points dollar-neutral.

There was $170 million in reported volume.

Axon’s stock traded to a low of $168.30 and a high of $171.84 before closing the day at $170.16, an increase of 0.43%.

Herbalife down outright

Herbalife sold $250 million of long five-year convertible notes after the market close on Tuesday at par with a coupon of 4.25% and an initial conversion premium of 30%.

Pricing came at the cheap end of talk for a coupon of 3.75% to 4.25% and at the midpoint of talk for an initial conversion premium of 27.5% to 32.5%, according to a market source.

The notes were struggling outright but were performing well on swap.

The 4.25% notes traded as low as 98.5 in intraday activity.

However, they pared their losses and were changing hands at par versus a stock price of $12.57 in the late afternoon.

The notes expanded about 1 point dollar-neutral.

Herbalife’s stock traded to a low of $12.04 and a high of $12.97 before closing the day at $12.62, a decrease of 3.37%.

The deal came as a refinancing with the company using $274.9 million to repurchase $287.5 million in principal of the company’s 2.625% convertible notes due 2024.

The 2.625% notes appeared to be repurchased at 95, a source said.

Mentioned in this article:

Chefs’ Warehouse Inc. Nasdaq: CHEF

Cutera Inc. Nasdaq: CUTR

Axon Enterprise Inc. Nasdaq: AXON

EZCorp Inc. Nasdaq: EZPW

Herbalife Nutrition Ltd. NYSE: HLF

NextEra Energy Partners LP NYSE: NEP

Uniti Group Inc. Nasdaq: UNIT

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