Convertibles primary set to price $2.05 billion in five deals; new notes flood secondary

By Abigail W. Adams

Portland, Me., May 12 – The convertibles primary market continued to break records with $2.05 billion in five deals set to price after the market close on Tuesday after five deals totaling $4.3 billion cleared the primary market after the market close on Monday.

Lyft Inc. plans to price $650 million of five-year convertible notes, Zillow Group Inc. plans to sell $500 million of five-year convertible notes, Cloudflare Inc. plans to price $500 million five-year convertible notes, Tandem Diabetes Care Inc. plans to price $250 million of five-year convertible notes and Cantel Medical Corp. plans to sell $150 million of five-year convertible notes after the market close on Tuesday.

The deals modeled cheap based on underwriters’ assumptions, sources said.

As market players eyed the new deals in the pipeline, the secondary space was flooded with the $4.3 billion over five deals that priced after the market close on Monday.

While pricing of the deals was becoming increasingly aggressive, each deal played to healthy demand and was upsized.

DexCom Inc. priced an upsized $1.05 billion of 5.5-year convertible notes, BioMarin Pharmaceutical Inc. priced an upsized $550 million of seven-year convertible notes, Penn National Gaming Inc. priced an upsized $300 million of six-year convertible notes, Pioneer Natural Resources Co. priced an upsized $1.15 billion of five-year convertible notes and ArcelorMittal SA sold an upsized $1.25 billion of three-year $25-par mandatory convertible notes.

While only two days into the May 11 week, the convertibles primary market is already poised to break the year-to-date record for new deal volume for the third straight week in a row.

The convertibles primary market has not been this active “in a very long time,” a source said.

And if equity markets continue to hold, it is expected to stay that way.

“Investors are happy to put money to work,” a source said. “I don’t see what will stop the music.”

Lyft’s first convertible

Lyft plans to price $650 million of five-year convertible notes after the market close on Tuesday with price talk for a yield of 1.25% to 1.75% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The deal was being marketed with assumptions of 750 basis points over Libor and a 45% vol., according to a market source.

Using those assumptions, sources pegged the deal 3 to 4 points cheap at the midpoint of talk.

The credit spread made sense, especially when looking at competitive ride-sharing company Uber.

Uber is a larger company but also has more leverage.

Its senior unsecured note trades with a 700 bps spread, a source said.

The relative youth of the company and a steady stream of negative headlines that surround it made some sources apprehensive about the convertible notes offering.

However, others saw the offering as a boon for the convertibles universe with Lyft a household name.

Lyft went public a little over one year ago at a public offering price of $72.00.

With stock down more than 50%, the IPO was widely regarded as a flop.

Zillow’s buyback

Zillow plans to price $500 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 2.5% to 3% and an initial conversion premium of 37.5% to 42.5%.

The deal was heard to be marketed with assumptions of 700 bps over Libor and a 40% vol., according to a market source.

Using those assumptions, sources pegged the deal about 3 points cheap at the midpoint of talk.

The deal was believed to be pricing at the midpoint of talk.

Concurrently with the convertible notes offering, the company intends to repurchase a portion of its 2% convertible notes due 2021 in privately negotiated transactions, which will be settled in cash and shares.

The company also plans to price a secondary offering of $500 million of its class C capital stock.

The 2% notes were active on Tuesday and were changing hands at 125 with more than $6 million in reported volume, according to a market source.

The 2% notes have $460 million outstanding, according to Trace data.

Cloudflare looks cheap

Cloudflare plans to price $500 million five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.5% to 1% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The deal from the web infrastructure and cybersecurity company was heard to be in the market with assumptions of 450 bps over Libor and a 40% vol., according to a market source.

Using those assumptions, the deal looked about 4.75 points cheap at the midpoint of talk.

Other sources were more conservative with the credit spread and pegged assumptions at 600 bps over Libor and a 45% vol., given the continued uncertainty of the markets.

However, even with a wider credit spread, the deal still looked about 3.5 points cheap at the midpoint of talk, the source said.

The deal was expected to do well with the pricing good for a tech company, sources said.

It was believed to be pricing toward the cheap or midpoint of talk.

Tandem eyed

Tandem Diabetes intends to sell $250 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 1% to 1.5% and an initial conversion premium of 30% to 35%, according to a market source.

The deal was heard to be in the market with assumptions of 575 bps over Libor and a 40% vol., which looked about 2.71 points cheap at the midpoint of talk, a source said.

However, other sources pegged assumptions at 650 bps over Libor and a 45% vol., which looked about 3.33 points cheap at the midpoint of talk.

Cantel Medical eyed

Cantel Medical plans to price $150 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 2.75% to 3.25% and an initial conversion premium of 30% to 35%.

The deal was heard to be in the market with assumptions of 800 bps over Libor and a 40% vol., according to a market source.

Using those assumptions, the deal looked 4.16 points cheap at the midpoint of talk, a source said.

While the deal was among the cheapest to come on Tuesday, some sources felt the credit was iffy enough that the offering should price on the cheap end of talk to make it appealing.

Pioneer Natural dominates

Pioneer Natural Resources sold an upsized $1.15 billion five-year convertible notes after the market close on Monday at par at the midpoint of talk with a coupon of 0.25% and an initial conversion premium of 30%.

Price talk was for a coupon of 0% to 0.5% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

While the deal was slow to trade early in the session, it dominated activity in the secondary space with more than $135 million in reported volume.

However, the notes saw only minor gains on an outright and dollar-neutral basis.

The 0.25% notes were trading in a range of par to 100.5 throughout Tuesday’s session, a source said.

They were expanded about 0.25 point dollar-neutral.

Pioneer Natural Resources stock traded to a high of $86.56 and a low of $83.50 before closing the day at $84.03, a decrease of 0.49%.

BioMarin at the mids

BioMarin Pharmaceutical priced an upsized $550 million seven-year convertible notes after the market close on Monday at the midpoint of talk with a coupon of 1.25% and an initial conversion premium of 42.5%.

Price talk was for a coupon of 1% to 1.5% and an initial conversion premium of 40% to 45%, according to a market source.

The new 1.25% notes saw high-volume activity on Tuesday.

They were changing hands at 100.75 in the late afternoon with stock up slightly.

BioMarin stock traded to a high of $100.75 and a low of $95.27 before closing the day at $96.16, a decrease of 0.32%.

The majority of proceeds from BioMarin’s new offering will be used to repurchase or settle in cash its 1.5% convertible notes due 2020.

While sources were unclear about the buyback price for the 1.5% convertible notes, they were active on Tuesday with several prints between 111.5 and 112.625.

DexCom flat

DexCom priced an upsized $1.05 billion of 5.5-year convertible notes after the market close on Monday with a coupon of 0.25% and an initial conversion premium of 42.5%.

Pricing came toward the rich end of talk for a coupon of 0.125% to 0.625% and at the midpoint of talk for an initial conversion premium of 40% to 45%, according to a market source.

The new 0.25% notes fell flat on an outright basis. They were largely stuck at par and, at times, dipped below in intraday activity with stock off, sources said.

While flat on an outright basis, the notes were expanded about 0.25 point dollar-neutral.

DexCom stock traded to a high of $421.77 and a low of $410.10 before closing the day at $410.80, a decrease of 2.51%.

DexCom intends to use $282.6 million of the net proceeds and issue 1,953,067 shares to repurchase or exchange approximately $260 million of its outstanding 0.75% convertible notes due 2022 in individually negotiated transactions.

The 0.75% notes due 2022 last traded on Monday at 425.4, according to Trace data.

Prior to the buyback, the notes had about $400 million outstanding.

Penn National upsizes

Penn National Gaming sold an upsized $300 million of six-year convertible notes after the market close on Monday with a coupon of 2.75% and an initial conversion premium of 30%.

Pricing came at the rich end of talk for a coupon of 2.75% to 3.25% and at the midpoint of talk for an initial conversion premium of 27.5% to 32.5%, according to a market source.

Concurrently with the convertible notes, the company priced a secondary offering of $300 million, or 16,666,667 shares, at $18.00 a share.

The 2.75% notes were making gains on an outright and dollar-neutral basis.

They traded as high as 101.5 in intraday activity but came in as the session progressed.

The notes were seen at 100.5 bid, 101 offered in the late afternoon.

The 2.75% notes were expanded about 0.25 point dollar-neutral.

Penn National Gaming stock traded to a high of $19.32 and a low of $17.61 before closing the day at $17.75, a decrease of 4.88%.

ArcelMittor contracts

ArcelorMittal priced an upsized $1.25 billion of three-year $25-par mandatory convertible notes after the market close on Monday at the midpoint of talk with a dividend of 5.5% and a threshold appreciation premium of 17.5%.

Price talk was for a dividend of 5.25% to 5.75% and a threshold appreciation premium of 15% to 20%, according to a market source.

Concurrently with the mandatory convertible notes offering, the company priced a downsized $750 million, or 80.9 million shares, at a public offering price of $9.27 or €8.57 at a U.S. dollar to euro conversion rate of 1.0816.

The mandatory convertible notes struggled in the aftermarket and were trading down on an outright and dollar-neutral basis.

The 5.5% notes traded as low as $23.50 in intraday activity.

They were contracted 0.5 point dollar-neutral.

ArcelMittor stock traded to a high of $9.06 and a low of $8.52 before closing the day at $8.57, a decrease of 6.54%.

Mentioned in this article:

ArcelorMittal SA NYSE: MT

BioMarin Pharmaceutical Inc. Nasdaq: BMRN

Cantel Medical Corp. NYSE: CMD

Cloudflare Inc. NYSE: NET

DexCom Inc. Nasdaq: DXCM

Lyft Inc. Nasdaq: LYFT

Penn National Gaming, Inc. Nasdaq: PENN

Pioneer Natural Resources Co. NYSE: PXD

Tandem Diabetes Care Inc. Nasdaq: TNDM

Zillow Group Inc. Nasdaq: Z

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