Guidewire, Etsy continue to dominate the convertibles space; Deutsche Bank seen as cheap

By Abigail W. Adams

Portland, Me., March 12 – The primary market was quiet on Monday with no new convertibles deals announced. While overall trading volume was light in the secondary market, new paper from Guidewire Software Inc. and Etsy Inc. remained active.

“It’s the typical Monday,” a market source said.

Guidewire’s 1.25% convertible notes due 2025 and Etsy’s 0% convertible notes due 2023, which made their market debut on Friday, accounted for about 30% of the total trading volume early in Monday’s session. Both notes continued to expand on a dollar-neutral basis.

Deutsche Bank AG, London Branch’s 1% cash-settled equity-linked notes linked to the common stock of Voya Financial, Inc. due 2023, which also debuted on Friday, did not garner as much trading attention as the other new deals. However, the equity-linked notes were seen on the tape on Monday at 101.75.

The new deal from Deutsche was seen as cheaper than JPMorgan Chase Financial Co. LLC’s 0.25% cash-settled equity linked notes linked to the common stock of Voya Financial due 2023, according to a market source.

While new paper from Guidewire and Etsy continued to dominate the secondary market, Western Digital Corp.’s 1.5% convertible notes due 2024 also remained a primary focus of trading activity. The notes continued to improve on a dollar-neutral basis.

They were seen trading at 113 versus an equity price of $102.00 and have expanded 4 points dollar neutral since their market debut on Jan. 31. “I think they’re outrageously expensive,” a market source said. “Others disagree.”

While recent deals traded up, Orexigen Therapeutics Inc.’s 2.75% convertible notes due 2020 tanked after the La Jolla, Calif.-based pharmaceutical company filed for Chapter 11 bankruptcy on Monday. The 2.75% convertible notes dropped about 13 points outright to trade in the 14 to 15 range.

Guidewire’s high coupon

Guidewire’s 1.25% convertible notes remained in focus their second day in the market with the notes up another 0.25-point dollar neutral on Monday, a market source said. The notes expanded about 2 points dollar neutral on their debut Friday.

The notes were trading in the 101.25 to 101.5 range with stock up slightly early in the session, a market source said. The notes were seen trading at 102.194 versus an equity price of $88.06 mid-afternoon.

Guidewire was priced with a higher coupon than other software companies that have priced recent deals, such as RingCentral, Inc.’s 0% convertible notes due 2023, Okta Inc.’s 0.25% convertible notes due 2023 or Q2 Holdings Inc.’s 0.75% convertible notes due 2023.

“It’s almost laughable that some would think a 1.25% coupon was high,” a market source said. The low volatility of the stock was the reason for the higher coupon. “It basically comes down to volatility,” the source said.

RingCentral’s 0% convertible notes were not seen on the tape on Monday after a spurt of activity on Friday. The 0% notes were last seen trading on Friday at 101.75 versus an equity price of $65.66.

Q2 Holdings’ 0.75% convertible notes were seen trading on Monday at 104.5 versus an equity price of $47.85.

Okta’s 0.25% convertible notes were last seen trading on Monday at 108.431 versus an equity price of $39.75.

Etsy expands

The expansion of Etsy’s 0% convertible notes due 2023 also continued on Monday. The 0% notes, which priced after the market close on March 8 with an issue price of 99, were up another 0.5 point dollar neutral, a market source said.

The 0% notes were up about 1 to 1.5 point dollar neutral on their market debut Friday.

Etsy was seen trading up to 102.5 to 103.5 early Monday with a good size volume, a market source said. The notes were seen at 103.642 versus an equity price of $27.97 later in the afternoon.

Deutsche notes eyed

While slow to trade on Friday, Deutsche Bank’s 1% cash-settled equity-linked notes tied to Voya Financial were seen trading around 101.75 versus an equity price of $53.87 during Monday’s session.

They were seen as a couple points cheaper than JPMorgan’s 0.25% cash-settled equity-linked notes, which priced on Jan. 31.

“There’s better upside on the (Deutsche) ones,” a market source said. Deutsche Bank also has better credit, the source said.

JPMorgan’s 0.25% notes were seen trading around 101.125 versus an equity price of $54.00 on Monday. Voya stock closed Monday’s session at $53.97, an increase of 1.95%.

The cash-settled equity linked notes are most likely synthetic derivatives set up by “a bond or equity type person” who wants the equity sensitivity of Voya but are issuing their own bond.

There is a cap on how much a buyside fund can use a bank for a derivative, which may explain the different banks involved in the equity-linked notes, a market source said.

The initial price for Deutsche’s 1% notes will be set after the close of a five-day averaging period of Voya stock, which began on March 9.

Orexigen bankrupt

Orexigen’s 2.75% convertible senior notes due 2020 tanked on Monday after the biopharmaceutical company, which is focused on obesity treatments, filed for Chapter 11 bankruptcy.

The busted convertible notes, which last traded at 28 in late January, dropped about 13 points to trade in the 14 to 15 range in scattered trading on Monday.

“The current holders already knew where this was heading,” a market source said. “This may be a pre-packaged bankruptcy.”

Orexigen said in its Chapter 11 filing that it had $265.10 million of assets and $226.40 million of liabilities as of Nov. 30, 2017, Prospect News reported.

The company said in a news release that it plans to hold an auction and sale process under section 363 of the bankruptcy code, which would require bidders to make an offer for all its assets.

Orexigen expects to have a deadline for bids of May 21, to begin the auction on May 24 and to close the sale by July 2.

Orexigen has obtained a debtor-in-possession financing commitment for $70.35 million from a controlling group of its senior secured noteholders.

The facility includes $35 million of new term loans and roll up loans for $35 million under which pre-bankruptcy senior secured notes will be converted into DIP facility obligations. In addition, a $350,000 fee to the DIP lenders will be capitalized.

Interest on the DIP loan is Libor plus 1,000 basis points.

Mentioned in this article:

Etsy Inc. Nasdaq: ETSY

Guidewire Software Inc. NYSE: GWRE

Okta Inc. Nasdaq: OKTA

Orexigen Therapeutics Inc. Nasdaq: OREX

Q2 Holdings Inc. NYSE: QTWO

RingCentral Inc. NYSE: RNG

Voya Financial, Inc. NYSE: VOYA

Western Digital Corp. Nasdaq: WDC

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.