ZTO Express convertible notes eyed; Peloton, Ormat Technologies gain in active trade

By Abigail W. Adams

Portland, Me., Aug. 24 – The convertibles primary market continued to churn out new offerings in a surprise burst of late-summer activity.

ZTO Express plans to price $870 million of five-year convertible notes after the market close.

While there was debate about the assumptions used for the sizable offering, the deal was wall-crossed with books closing early.

Meanwhile, it was another quiet day in the secondary space as equity indexes broke their losing streak.

The Dow Jones industrial average closed Wednesday up 60 points, or 0.18%, the S&P 500 index closed up 0.29%, the Nasdaq Composite index closed up 0.41% and the Russell 2000 index closed up 0.84%.

There was $225 million in reported convertibles trading volume in the late afternoon with no clear theme to the names on the tape.

Peloton Interactive Inc.’s 0% convertible notes due 2026 were on the rise in active trading following news the struggling exercise company had struck a deal with Amazon.

Ormat Technologies Inc.’s 2.5% convertible notes due 2027, which priced in June, resumed their upward climb.

ZTO in focus

ZTO plans to price $870 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 1% to 1.5% and an initial conversion premium of 30% to 35%.

Underwriters were marketing the deal with assumptions of a 230 basis points credit spread and a 35% vol., according to a market source.

Using those assumptions, the deal looked 4.4 points cheap at the midpoint of talk.

However, some sources felt the credit spread for the Shanghai-based delivery service was tight and pegged it at 350 bps.

There was debate about the vol. with some sources pegging it as high as 40% and others as low as 30%.

The 10-day vol. for the company’s ADSs is 25% but the 100-day vol. is 45%.

The company also pays a special cash dividend.

While the dividend is small and the notes carry dividend protection, it still erodes some of the cheapness of the deal, sources said.

ZTO is a large cap company that appears to have plenty of cash on the balance sheet.

However, there is a lot of distrust in the investor community about China-based companies and their accounting practices, sources said.

Delisting concerns and geopolitical tensions have also made the ADR space suspect.

“You’re walking on eggshells with anything coming out of China,” a source said. “It’s a scary environment.”

While some sources expressed skepticism about the offering, the deal was heard to be wall-crossed and already covered at the time of launch.

Books closed early with no change to price talk, a source said.

Peloton improves

Peloton’s struggling 0% convertible notes due 2026 were boosted in active trading on Wednesday on news the company had struck up a partnership with Amazon.

The 0% notes gained about 2.375 points outright.

They were changing hands at 73.5 in the late afternoon, according to a market source.

The notes were carrying a yield just north of 9%.

There was $12.5 million in reported volume.

Peloton’s stock traded to a high of $13.66 and a low of $12.16 before closing the day at $13.48, an increase of 20.36%.

Stock surged following news the exercise company struck a deal to sell its exercise equipment and apparel through Amazon.

The news comes on the eve of Peloton’s earnings, which are set for release post-close Thursday.

Ormat gains

Ormat Technologies’ 2.5% convertible notes due 2027 resumed their upward climb as stock gained alongside the broader market.

The 2.5% convertible notes gained 1.75 points outright with stock up more than 3%.

They were changing hands at 121 versus a stock price of $93.54 in the late afternoon, according to a market source.

The notes improved dollar-neutral on the move up.

There was $9 million in reported volume.

Ormat’s stock traded to a high of $95.25 and a low of $92.64 before closing the day at $95.21, an increase of 3.18%.

Ormat’s convertible notes have made large gains since the $431 million issue priced at par in late June with stock up almost 35% over the past two months.

Mentioned in this article:

Ormat Technologies Inc. NYSE: ORA

Peloton Interactive Inc. Nasdaq: PTON

ZTO Express NYSE: ZTO

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