Morning Commentary: Market eyes Canopy; Restoration, Sea, GCI Liberty, K2M hit the market

By Abigail W. Adams

Portland, Me., June 14 – The convertibles market is in the midst of another high-volume week of new deals with $1.29 billion in new paper hitting the secondary space on Thursday.

Restoration Hardware Inc. priced $300 million of seven-year convertible notes, GCI Liberty, Inc. priced an upsized $415 million of exchangeable senior debentures due 2046 tied to Charter Communications, Inc. stock and Sea Ltd. sold an upsized $500 million of five-year convertible notes after the market close on Wednesday.

K2M Group Holdings, Inc. priced $65 million of seven-year convertible notes prior to the market open on Thursday.

The deals had mixed performances out of the gate with some shooting “to the moon” and others contracting, market sources said.

While the market works to digest the new paper, the new deals are not yet done. Canopy Growth Corp. plans to price C$400 million of five-year convertible notes after the market close on Thursday in a Rule 144A and Regulation S deal.

Price talk is for a coupon of 4.25% to 4.75% and an initial conversion premium of 20% to 25%, according to a market source.

The offering from the Smiths Falls, Ont.-based medical and recreational marijuana company may be the first convertible notes offering from the sector involving American Depositary Shares, a market source said.

While the deal is sizable, sources queried were not getting involved due to the Canadian currency.

RH contracts

Restoration Hardware priced $300 million seven-year convertible notes after the market close on Wednesday with a coupon of 0% and an initial conversion premium of 25%.

Pricing came in line with talk for a fixed coupon of 0% and at the cheap end of talk for an initial conversion premium of 25% to 30%, according to a market source.

The new paper was off to a lackluster start in the secondary market. The new 0% notes were seen trading below their issue price and were contracted 0.25 point dollar neutral, a market source said.

Sea shoots ‘to the moon’

Sea priced an upsized $500 million of five-year convertible notes after the market close on Wednesday at the midpoint of talk with a coupon of 2.25% and an initial conversion premium of 32.5%.

Price talk had been for a coupon of 2% to 2.5% and an initial conversion premium of 30% to 35%, according to a market source.

The initial size of the deal had been $400 million. The greenshoe was also upsized to $75 million from $60 million.

The new 2.25% convertible notes shot “to the moon” right out of the gate, a market source said. They were seen trading at 103.25 bid, 104 offered with stock up to $15.15.

The notes expanded 3 points dollar neutral, a market source said.

GCI flat

GCI Liberty priced an upsized $415 million of exchangeable senior debentures due 2046 tied to Charter Communications stock after the market close on Wednesday with a coupon of 1.75% and an initial conversion premium of 30%.

Pricing came toward the cheap end of talk for a coupon of 1.375% to 1.875% and at the cheap end of talk for an initial exchange premium of 30% to 35%, according to a market source.

The notes were seen trading between 100.5 and 101 early in the session. They were flat to up 0.25 point dollar neutral, a market source said.

K2M prices

K2M Group Holdings sold $65 million of seven-year convertible notes prior to the market open on Thursday with a coupon of 3% and an initial conversion premium of 22.5%.

Pricing came toward the cheap end of talk for a coupon of 2.625% to 3.125% and at the midpoint of talk for an initial conversion premium of 20% to 25%, according to a market source.

The deal looked to be a couple points cheap and was expected to do well. However, the new 3% notes were not seen on the tape early in the session.

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