2U convertible offering eyed; Scorpio Tankers expands as oil collapses; Clovis active

By Abigail W. Adams

Portland, Me., April 20 – The convertibles primary market launched what many are expecting to be another active week for new deal activity with an overnight offering.

2U, Inc. plans to price $300 million of five-year convertible notes after the market close on Monday.

The deal looked cheap based on underwriters’ assumptions and was heard to be heavily oversubscribed.

With companies in need of liquidity, the active pace of the convertibles primary market is expected to continue, several sources said.

Since the start of April, $6.82 billion has priced over 12 deals – almost 6x the amount that priced at this time in April 2019.

“A lot of companies need to build up their balance sheets for the coming months,” a market source said.

And there is clearly money in the convertibles space that is ready and willing to be put to work, another source said.

As market players eyed the new deal on deck, the convertibles secondary space was relatively quiet on Monday.

There was about $54 million in reported volume early in Monday’s session and $357 million in reported volume about one hour before the market’s close.

While Monday marked another historic day for capital markets with crude oil futures plummeting into negative territory – at one point trading as low as negative $40 a barrel, its lowest level in history – the convertibles secondary market was holding up relatively well.

Scorpio Tankers Inc.’s 3% convertible notes due 2022 were expanding with the oil glut good news for the industry that stores excess reserves.

Clovis Oncology Inc.’s 4.5% convertible notes due 2024 jumped on an outright and dollar-neutral basis on the heels of a privately negotiated exchange.

Booking Holdings Inc.’s convertible notes were also active with stock off following news the online travel fare aggregator would be laying off staff in coming months.

2U eyed

2U plans to price $300 million of five-year convertible notes after the market close on Monday with price talk for a coupon of 2% to 2.5% and an initial conversion premium of 25% to 30%.

The deal was being marketed with assumptions of 800 basis points over Libor and a 42% vol., according to a market source.

Using those assumptions, the deal modeled 4.33 points cheap at the midpoint of talk, a source said.

Another source pegged assumptions at 800 bps over Libor and a 40% vol., which modeled 3.75 points cheap at the midpoint of talk.

While the borrow on the stock was tough at negative 0.04%, the deal is coming with a call spread.

It was heard to be in demand and well oversubscribed during bookbuilding, a source said.

While the educational technology company that helps facilitate online degree programs has a service that is in demand due to the coronavirus pandemic, stock was badly battered during the fire sale in March.

The company is trading near its 52-week low with its market cap nearly cut in half from its peak in 2019, a market source said.

2U stock was also taking a hit on Monday, closing the day at $22.17, a decrease of 7.51%.

Scorpio Tankers expands

Monday marked another historic day for capital markets with the barrel price of WTI crude oil for May delivery, a contract which expires on Tuesday, plunging into negative territory.

WTI crude oil futures hit negative $40 a barrel in intraday trading before settling at minus $13.10, a decrease of $31.37, or 171.70%.

However, the exposure of the convertibles universe to oil and gas is limited with the few convertible issues from the energy sector active on Monday.

“No one wants to trade them, because they don’t know where they’re at,” a source said.

However, the supply glut that caused sellers to pay buyers of crude oil was a boon to the tanker industry, a source said.

“The tankers are going bananas. It’s the only place to store oil,” the source said.

Scorpio Tankers’ 3% convertible notes due 2022 jumped on an outright and dollar-neutral basis.

The notes gained more than 6 points outright to change hands at 93.5 in the late afternoon.

They expanded about 2.5 points dollar-neutral, a market source said.

Scorpio Tankers stock traded to a low of $20.18 and a high of $23.65 before closing the day at $23.38, an increase of 18.44%.

Clovis expands

Clovis Oncology’s 4.5% convertible notes due 2024 jumped on an outright and dollar-neutral basis on Monday on the heels of a privately negotiated exchange.

The 4.5% notes rose 13.5 points outright. They were changing hands just north of 128 in the late afternoon.

While the notes are typically slow to trade, they were among the most active in the secondary space on Monday with $12.5 million in reported volume in the late afternoon.

Clovis stock traded to a low of $7.97 and a high of $9.95 before closing the day at $9.40, an increase of 15.20%.

The company announced on Friday that it had entered into a privately negotiated exchange with a holder of its 2.5% convertible notes due 2021.

The company will issue $36.05 million of the 4.5% convertible notes in exchange for $32.77 million of the 2021 notes, Prospect News reported.

The amount outstanding of the 2.5% notes is now $64.42 million.

Booking Holdings active

Booking Holdings’ convertible notes were active with stock off following news the online travel fare aggregator would be laying off staff in coming months.

Booking’s recently priced 0.75% convertible notes due 2025 were changing hands around 111.625 with stock off about 1% early in the session.

The notes dropped to 110.625 as stock continued its decline into the afternoon.

The 0.75% notes saw more than $10 million in reported volume during Monday’s session.

Booking’s soon-to-mature 0.35% convertible notes due June 15, 2020 were changing hands at 113.75 early in the session and 112.375 heading into the afternoon.

The bonds saw more than $8 million in reported volume.

Booking Holdings stock traded to a low of $1,410 and a high of $1,470 before closing the day at $1,411.63, an increase of 4.03%.

With travel bookings down 85% year over year, the company announced that it would engage in cost cutting, which will most likely include layoffs, Financial Times reported.

Mentioned in this article:

2U, Inc. Nasdaq: TWOU

Booking Holdings Inc. Nasdaq: BKNG

Clovis Oncology Inc. Nasdaq: CLVS

Scorpio Tankers Inc. NYSE: STNG

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