RingCentral, Canadian Solar, PROS Holdings convertibles eyed in primary; K-12 tanks

By Abigail W. Adams

Portland, Me., Sept. 10 – The convertibles primary market returned to action, rolling out three deals totaling $950 million, which are slated to price after the market close.

RingCentral Inc. plans to price $600 million of convertible notes due March 15, 2026, Canadian Solar Inc. plans to price $200 million five-year convertible notes and PROS Holdings, Inc. plans to sell $150 million of seven-year convertible notes.

While Canadian Solar and PROS Holdings looked cheap, RingCentral did not, sources said.

However, RingCentral is a well-known name in the convertibles universe.

With the fundamentals of the company strong, the deal is expected to do well.

Meanwhile, it was an active day in the secondary space on a volatile day for equities.

While equity markets were strong early in the session, they were selling off in the afternoon.

“It’s a topsy-turvy market,” a source said.

K12 Inc.’s 1.125% convertible notes due 2027 were the ‘disaster du jour’ with the notes tanking on an outright and dollar-neutral basis as stock plummeted after the Miami-Dade school district voted to end its contract with the online learning platform.

RingCentral’s refinancing

RingCentral plans to price $600 million of convertible notes due March 15, 2026 after the market close on Thursday at par with price talk for a fixed coupon of 0% and an initial conversion premium of 50% to 55%, according to a market source.

The deal was heard to be in the market with assumptions of 275 basis points over Libor and a 42% vol.

Using those assumptions, the deal looked about 0.43 point cheap at the midpoint of talk, sources said.

While RingCentral’s offering had some of the tightest pricing of recent deals, the company can get away with a par value, a source said.

The cloud communications software company’s stock is a “10-bagger” that has increased 10-fold in the past three years, a source said.

It was trading around $27 in 2017.

The average target price on the stock is $339 with the majority of analysts rating the company as a buy.

“It’s hard to say it shouldn’t get a little equity kicker value,” a source said. The offering was attractive because of the fundamentals of the company.

RingCentral is the latest company to use proceeds from a new offering to refinance its outstanding convertible debt.

Proceeds will be used to refund the repurchase of a portion of its 0% convertible notes due 2023 in privately negotiated transactions.

The 0% convertible notes due 2023 currently trade at triple par.

Typically, companies pay a premium to retire their outstanding debt.

The “kiss” involved in the buyback of the old notes will also help drive demand for RingCentral’s new offering, sources said.

Canadian Solar looks cheap

Canadian Solar plans to price $200 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 2.25% to 2.75% 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 750 bps over Libor and a 40% vol.

With a 50 bps borrow, the deal looked almost 6 points cheap at the midpoint of talk, one source said.

Other sources saw the deal as 4.2 points cheap.

While the solar power company currently does not have any outstanding convertible notes, it was at one time a serial issuer, a source said.

Analysts are expecting negative earnings from the company for the current quarter. However, it has a positive track record and could easily turn a profit, a source said.

The deal was heard to have played to a large amount of reverse inquiry.

It did well during bookbuilding with books closing in the early afternoon, a source said.

PROS Holdings eyed

In an overnight deal, PROS Holdings plans to price $150 million of seven-year convertible notes after the market close on Thursday with price talk for a coupon of 2% to 2.5% 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 750 bps over Libor and a 40% vol.

Using those assumptions, the deal looked about 1.5 points cheap at the midpoint of talk, a source said.

Other sources pegged assumptions as 675 bps over Libor and a 40% vol., which increased the cheapness of the deal to 3 points.

The pricing on the notes seemed reasonable with the deal optically attractive, sources said.

K12 tanks

K12’s recently priced 1.125% convertible notes due 2027 tanked on an outright and dollar-neutral basis on Thursday after losing its contract with the Miami-Dade school district.

The 1.125% convertible notes traded as low as 87 during Thursday’s session but were changing hands around 90 in the late afternoon.

They were contracted 2.5 points dollar-neutral, a source said.

K12 stock traded to a low of $28.08 and a high of $34.37 before closing the day at $30.55, a decrease of 9.51%.

Stock tanked after the Miami-Dade School Board voted to terminate its contract with My School Online, a K12 program.

The decision came after a 13-hour meeting that was filled with overwhelmingly negative feedback about the program from parents, students and teachers.

The program was blamed for several problems the district encountered at the start of the school year, NBC Miami reported.

Mentioned in this article:

Canadian Solar Inc. Nasdaq: CSIQ

K12 Inc. NYSE: LRN

PROS Holdings, Inc. NYSE: PRO

RingCentral Inc. NYSE: RNG

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