Exact Sciences on tap; Pluralsight looks cheap; Ares Capital reprices; Ctrip.com in focus

By Abigail W. Adams

Portland, Me., March 5 – The convertibles primary market was active Tuesday with three deals totaling $1.4 billion on deck.

In an overnight deal, Ares Capital Corp. planned to price $350 million of five-year convertible notes after the market close on Tuesday. The deal was repriced during bookbuilding and is expected to price at a discount.

While Ares Capital’s new offering was in the works, the specialty finance company’s 3.75% convertible notes due 2022 were contracting based on the new deal.

In another overnight deal, Exact Sciences Corp. plans to price $600 million of eight-year senior notes prior to the market open Wednesday, according to a market source.

The deal was heard to be wall-crossed and will involve an exchange of the company’s 1% convertible notes due 2025.

Pluralsight, Inc. plans to price $450 million of five-year convertible notes after the market close on Wednesday. The deal looked cheap; however, the company is young and went public less than one year ago, sources said.

While focus was on the new deals in the works, Ctrip.com International Ltd.’s convertible notes were in focus in the secondary space as the company’s equity skyrocketed post-earnings.

Ares reprices

Ares Capital planned to price $350 million of five-year convertible notes after the market close on Tuesday.

The deal was heard to have struggled during bookbuilding with the deal repriced to include a discount.

Revised price talk for the notes was a reoffer price of 98 to 98.5, a fixed coupon of 4.625% and a fixed initial conversion premium of 15%.

Initial price talk had the notes coming at par with a coupon of 4.125% to 4.625% and an initial conversion premium of 15% to 20%.

Using assumptions of 180 basis points over Libor and a 13.5% vol., the deal looked slightly cheap at the midpoint of the initial price talk, according to one market source.

Using assumptions of 250 bps over Libor and a 17% vol., the deal looked about 0.875 point rich at the midpoint of the initial price talk, another source said.

Due to the low vol. of the name, Ares Capital will not appeal to hedge accounts. “There’s no juice in these,” a source said.

The last deal Ares Capital priced, its 3.75% convertible notes due 2022, struggled out of the gate after pricing, a market source said.

The 3.75% notes have traded in a tight range of par to 103 since hitting the market in December 2017, the source said.

The 3.75% notes were contracting as the new offering was in the works.

The notes traded down to 99.875 on Tuesday and were contracted about 0.375 point dollar-neutral, a market source said.

Ares Capital stock closed Tuesday at $17.29, a decrease of 0.97%.

Exact Sciences wall-crossed

Exact Sciences plans to price $600 million of eight-year senior notes prior to the market open Wednesday with price talk for a reoffer price of 99.5, a coupon of 0.375% and an initial conversion premium of 27.5%, according to a market source.

BofA Merrill Lynch is the bookrunner for the registered offering, which carries a greenshoe of $90 million.

The deal was heard to be wall-crossed, a market source said.

Concurrent to the new offering, Exact Sciences plans to exchange 50% of the outstanding principal amount of its 1% convertible notes due 2025 in individually negotiated transactions.

The company may also exchange or induce conversion of the 1% convertibles with proceeds from the new offering to be used to cover the exchange or conversion.

The 1% convertibles currently have $908.5 million outstanding. They changed hands on Tuesday at 136.7, according to Trace data.

Exact Sciences initially priced the 1% convertibles at 98.75 in January 2018 when the stock was $55.06.

The molecular diagnostics company focused on the early detection of colorectal cancer later priced an add-on at 106.5 in June 2018 when the stock was $63.20, according to Prospect News data.

The 1% notes are non-callable but do have a contingent conversion subject to a 130% trigger.

Exact Sciences stock closed Tuesday at $87.58.

Pluralsight looks cheap

Pluralsight plans to price $450 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 0.375% to 0.875% and an initial conversion premium of 30% to 35%.

The deal was heard to be in the market with a credit spread of 300 bps over Libor and a 40% vol., a market source said.

Sources pegged the deal about 1.8 points cheap at the midpoint of talk.

However, sources questioned the credit spread given the short amount of time Pluralsight has been publicly traded.

The online education company specializing in technology learning went public in May 2018.

The company also does not have positive cash flow, a market source said.

The convertible notes are pricing concurrently with an underwritten offering of 13,558,464 common shares from selling stockholders, from which the company will receive no proceeds.

The common stock offering is the reason why the notes are not slated to price until after the market close Wednesday, a market source said.

Ctrip.com in focus

Ctrip.com’s convertible notes were major volume movers on Tuesday with the notes making large outright gains as equity soared post-earnings.

The Shanghai-based travel services provider’s 1.99% convertible notes due 2025 jumped 7.5 points outright to close the day at 111.75.

The 1% convertible notes due 2020 rose 3.75 points to 101.5.

The longer-duration notes were more equity sensitive than the shorter-dated paper, a market source said.

Holders appeared to be moving from the longer-dated notes to the shorter-dated notes on the assumption that the stock had reached its peak, the source said.

Ctrip.com’s equity soared following the company’s fourth-quarter earnings report.

The company’s American Depositary Shares closed Tuesday at $41.91, an increase of 19.78%.

Ctrip.com reported fourth-quarter earnings per share of RMB 90 cents versus analyst expectations for a loss per share of RMB 24 cents, according to investerplace.com.

Revenue was RMB 7.56 billion versus analyst expectations for revenue of RMB 7.19 billion.

Mentioned in this article:

Ares Capital Corp. NYSE: AFC

Ctrip.com International Ltd. Nasdaq: CTRP

Exact Sciences Corp. Nasdaq: EXAS

Pluralsight, Inc. Nasdaq: PS

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