Convertibles primary to price $3.8 billion of notes in five deals; pricing ‘aggressive’

By Abigail W. Adams

Portland, Me., May 11 – The convertibles primary market stood poised for another record-setting week with $3.8 billion set to price over five deals after the market close on Monday.

Pioneer Natural Resources Co. plans to price $1 billion of five-year convertible notes, BioMarin Pharmaceutical Inc. plans to price $500 million of seven-year convertible notes, DexCom Inc. plans to sell an upsized $1.05 billion of convertible notes due November 2025, Penn National Gaming, Inc. plans to price $250 million of six-year convertible notes, and ArcelorMittal SA plans to sell up to $1 billion of three-year $25-par mandatory convertible notes.

While the deals modeled cheap based on underwriter’s assumptions, pricing was becoming increasingly aggressive, sources said.

Three of the four convertible notes offerings on deck were being marketed with credit spreads inside 400 basis points.

The two deals from the health care sector were in the market with talk for a conversion premium of 40% to 45%.

The offering from an investment-grade company from the energy sector was talked with a coupon of 0% to 0.5%.

“This is aggressive pricing compared to what we’ve become accustomed to,” a market source said.

Underwriters were starting to push the envelope, another source said.

However, other sources felt the pricing was fair.

While none of Monday’s deals were bargains, they weren’t overpriced either, the source said.

Pioneer’s $1 billion notes

Pioneer Natural Resources plans to price $1 billion of five-year convertible notes after the market close on Monday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The deal was heard to be marketed with assumptions of 300 bps over Libor and a 40% vol., according to a market source.

Using those assumptions, sources pegged the deal about 3.5 points cheap at the midpoint of talk.

The oil and gas exploration company is investment grade, and the convertible notes are expected to receive an investment-grade rating, which will help with demand, a source said.

While the energy sector has been badly battered over the past few months, the company is poised to be a survivor, another source said.

ArcelorMittal’s mandatory

ArcelorMittal plans to price up to $1 billion of three-year $25-par mandatory convertible notes after the market close on Monday with price talk for a dividend of 5.25% to 5.75% and a threshold appreciation premium of 15% to 20%, according to a market source.

ArcelorMittal is an investment-grade company. However, with its straight debt trading with high-yield spreads, it is on the watchlist of companies in danger of being downgraded to junk.

Concurrently with the mandatory convertible notes offering, the company plans to price a secondary offering of up to $1 billion shares.

BioMarin refinances

BioMarin Pharmaceutical plans to sell $500 million of seven-year convertible notes after the market close on Monday with price talk for a coupon of 1% to 1.5% and an initial conversion premium of 40% to 45%, according to a market source.

The deal was heard to be in the market with assumptions of 375 bps over Libor and a 36% vol., according to a market source.

Using those assumptions, the deal looked about 2.25 points cheap at the midpoint of talk, a source said.

The deal was talked with a hefty conversion premium, especially with stock trading near the 52-week high, a source said.

The seven-year maturity was also seen as a drawback.

However, the company is a serial issuer of convertible notes, and the deal was heard to have played to strong demand.

The deal was believed to be pricing either at the rich or midpoint of talk, sources said.

The company intends to use up to $50 million of net proceeds to repurchase shares of common stock either in privately negotiated transactions with purchasers of the notes or following the offering in privately negotiated or other transactions.

The majority of proceeds will be used to repurchase or settle in cash its 1.5% convertible notes due 2020.

The 1.5% notes due Oct. 15, 2020 were active on Monday. They were changing hands at 111.125 versus a stock price of $97.17, according to a market source.

The 1.5% notes saw more than $8 million in reported volume.

BioMarin stock traded to a low of $93.26 and a high of $98.34 before closing the day at $96.47, an increase of 1.33%.

The 1.5% notes have $375 million in principal outstanding, according to Trace data.

Penn’s offering

Penn National Gaming plans to price $250 million of six-year convertible notes after the market close on Monday with price talk for a coupon of 2.75% to 3.25% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The deal was heard to be in the market with assumptions of 850 bps over Libor and a 40% vol., according to a market source.

Using those assumptions, the deal looked 4.25 points cheap at the midpoint of talk, a source said.

While the deal modeled cheap, the gaming sector has been badly battered by the Covid-19 pandemic with the deal more rescue financing, a source said.

The company is “working on getting through to the other side of the pandemic,” another source said.

Concurrently with the convertible notes, the company plans to price a secondary offering of up to $250 million.

DexCom upsizes

DexCom’s convertible notes offering was in demand during bookbuilding with the offering upsizing.

The company now plans to sell an upsized $1.05 billion of 5.5-year convertible notes after the market close on Monday with pricing revised to a coupon of 0.25% and an initial conversion premium of 42.5%.

The initial size of the offering was $850 million and initial price talk was for a coupon of 0.125% to 0.625% and an initial conversion premium of 40% to 45%.

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

Using those assumptions, the deal looked 3.25 points cheap at the midpoint of initial price talk, a source said.

However, the revised pricing eroded the cheapness of the deal with the offering looking about 1 point cheap with a coupon of 0.25% and a premium of 42.5%, a source said.

The conversion premium talk was high, especially with the company trading at an all-time high on Monday, a source said.

However, the company is a well-known and well-liked name in the convertibles universe.

DexCom intends to use up to $600 million of net proceeds to repurchase up to $260 million of its outstanding 0.75% convertible notes due 2022 in individually negotiated transactions and to repurchase shares of common stock from purchasers of the convertible notes at a price equal to the stock reference price.

The 0.75% notes due 2022 broke past quadruple-par on Monday and were changing hands at 104.75 in the late afternoon.

DexCom’s 0.75% convertible notes due 2023 were also major volume movers on Monday.

The notes gained more than 8 points outright as stock hit an all-time high.

They were changing hands at 257 in the late afternoon with more than $22 million in reported volume, according to a market source.

DexCom stock traded to a high of $428.00 and a low of $403.60 before closing the day at $421.36, an increase of 3.91%.

Mentioned in this article:

ArcelorMittal SA NYSE: MT

BioMarin Pharmaceutical Inc. Nasdaq: BMRN

DexCom Inc. Nasdaq: DXCM

Penn National Gaming, Inc. Nasdaq: PENN

Pioneer Natural Resources Co. NYSE: PXD

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