Bilibili, Cerence on tap; Silicon Labs, NuVasive, Air Canada eyed; 1Life Healthcare down

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, two more on deck for Thursday and one new deal making its aftermarket debut.

Bilibili Inc. plans to price $650 million of seven-year convertible notes and Cerence Inc. plans to price $150 million of five-year convertible notes after the market close on Thursday.

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

Air Canada’s deal was in demand during bookbuilding with the offering upsizing.

Silicon Labs’ new deal also looked cheap based on underwriters’ assumptions.

However, NuVasive’s latest offering had some sources scratching their heads.

Meanwhile, 1Life Healthcare Inc. newly priced convertible notes traded well below par on their secondary market debut.

The pipeline

Bilibili plans to price $650 million of seven-year convertible notes after the market close on Thursday 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.

Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC and BofA Securities Inc. are bookrunners for the Rule 144A and Regulation S offering, which carries a greenshoe of $100 million.

Cerence plans to price $150 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 2.75% to 3.25% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

Wells Fargo Securities LLC (lead left) and Evercore are bookrunners for the Rule 144A offering, which carries a greenshoe of $25 million.

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.

While the deal was not a bargain, the pricing was reasonable, a source said.

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 upsizes

Air Canada plans to sell an offering 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 marketed 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.

The offering was heard to be in demand during bookbuilding with the deal upsizing to $600 million from $400 million, a source said.

Concurrently with the convertible notes, Air Canada plans to price a secondary offering of C$500 million class A and/or class B shares.

The deal was more rescue financing. However, the rescue financing appeared to be working, a source said, pointing to the performance of Southwest Airlines Co.’s 1.25% convertible notes due 2025 as an example.

Southwest’s 1.25% convertible notes traded up to 116 on Wednesday, their highest dollar price since hitting the secondary space, and expanded another 1 point dollar-neutral, a market source said.

While the conversion of Air Canada’s notes into Canadian shares complicates the deal somewhat, it did not affect demand for the notes.

Canadian pension funds were among the buyers of the notes, a source said.

The notes were heard to be bid up 1 point in the gray market.

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.

“This might be the one that broke the camel’s back,” a source said.

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 over Libor, 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.

The company needed to raise money, “and this is how you get it done,” another source said. “But you only get to do something like this once.”

The 0.375% notes have struggled below par since pricing.

They continued to trade on a 92-handle on Wednesday. They were seen in line to contracted about 0.25 point dollar-neutral, sources said.

NuVasive stock traded to a high of $64.42 and a low of $62.25 before closing the day at $63.54, a decrease of 2.13%.

The 0.375% notes would have taken more of a hit if the dollar price had been higher, a source said.

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

With proceeds being used to take out the 2021 notes, the deal looked a little better than it modeled, a source said.

1Life Healthcare below par

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.

The new paper tanked on its secondary market debut.

The 3% notes were seen at 100 bid, 100.75 offered versus a stock price of $34.18 early in the session.

However, they dropped well below par as stock cracked into the afternoon.

The notes traded as low as 96.75 late Wednesday and closed the day at 96, a source said.

However, volume was light with only $15 million in reported volume during Wednesday’s session.

1Life Healthcare stock traded to a high of $33.63 and a low of $30.56 before closing the day at $31.23, an increase of 8.63%.

Mentioned in this article:

1Life Healthcare Inc. Nasdaq: ONEM

Air Canada TSX: AC

Bilibili Inc. Nasdaq: BILI

Cerence Inc. Nasdaq: CRNC

NuVasive Inc. Nasdaq: NUVA

Silicon Laboratories Inc. Nasdaq: SLAB

Southwest Airlines Co. NYSE: LUV

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