Morning Commentary: Silicon Labs, NuVasive, Air Canada eyed; 1Life Healthcare upsizes

By Abigail W. Adams

Portland, Me., May 27 – The new deal parade in the convertibles market continued on Wednesday with three new offerings set to price after the market close and one new deal making its aftermarket debut.

Silicon Laboratories Inc. plans to price $500 million of five-year convertible notes, Air Canada plans to price $400 million of five-year convertible notes and NuVasive Inc. plans to price $400 million of three-year convertible notes after the market close on Wednesday.

While Air Canada’s offering looked cheap based on underwriters’ assumptions, NuVasive came out to fair value.

The pricing and the maturity of NuVasive’s notes had some sources scratching their heads.

Meanwhile, 1Life Healthcare Inc. priced an upsized $275 million of five-year convertible notes.

Silicon Labs on deck

Silicon Labs plans to price $500 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 0.375% to 0.875% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

The deal was heard to be marketed with assumptions of 475 basis points over Libor and a 40% vol.

Using those assumptions, the deal looked about 1.25 points cheap at the midpoint of talk.

A portion of the company’s proceeds will be used to repurchase approximately $200 million of the principal amount of its 1.375% convertible notes due 2022 in privately negotiated transactions with the terms individually negotiated with each holder of the notes.

Air Canada looks cheap

Air Canada plans to sell $400 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 4.5% to 5% and an initial conversion premium of 25% to 30%, according to a market source.

The deal was heard to be in the market with assumptions of 1,300 bps over Libor and a 40% vol., according to a market source.

Using those assumptions, the deal looked about 4.5 to 5 points cheap at the midpoint of talk, sources said.

NuVasive eyed

NuVasive plans to price $400 million of three-year convertible notes after the market close on Wednesday with price talk for a coupon of 0.75% to 1.25% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

The deal was heard to be marketed with assumptions of 650 bps over Libor and a 40% vol., according to a market source.

Using those assumptions, the deal modeled just slightly cheaper than fair value, sources said.

Sources pegged the notes about 0.125 point to 0.5 point cheap at the midpoint of talk.

The deal modeled the richest of any to come since the March meltdown.

However, underwriters may have been expecting stock to take a hit and priced it into the deal.

The credit spread also seemed wide for a company that has cash on the books, a source said.

Using a credit spread of 400 bps, the deal looked about 4 points cheap at the midpoint of talk.

The three-year maturity of the notes was unique and had many sources scratching their head.

The San Diego-based medical device company tapped the convertibles market as recently as Feb. 27 when it priced a $450 million issue of 0.375% notes due 2025.

The company may have been attempting to stagger the maturity of its notes, a source said.

However, for buyers of the 0.375% notes, “yikes,” a market source said.

Proceeds from NuVasive’s latest offering will be used to repurchase its outstanding 2.25% convertible notes due 2021.

1Life Healthcare upsizes

1Life Healthcare, which does business as One Medical, priced an upsized $275 million of five-year convertible notes after the market close on Tuesday at par with a coupon of 3% and an initial conversion premium of 30%.

Pricing came at the cheap end of talk for a coupon of 2.5% to 3% and at the midpoint of talk for an initial conversion premium of 27.5% to 32.5%, according to a market source.

The greenshoe was also upsized to $41.25 million.

The initial size of the deal was $250 million with a greenshoe of $37.5 million.

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