Bill.com convertible looks cheap; airline names fly higher again on vaccine expectations

By Rebecca Melvin

New York, Nov. 24 – Convertibles players on Tuesday were eying the chunky Bill.com Holdings Inc. five-year convertible bond that was expected to price after the market close.

The $750 million Bill.com issue was seen modeling cheap at the midpoint of price talk. Using a credit spread of 350 basis points over Libor and a 45% vol., the deal was worth 102.79, a New York-based market source.

Meanwhile, airline convertibles extended gains on Tuesday after more positive news on Monday in the development of a Covid-19 vaccine pushed the companies’ stocks and bonds higher during that session.

Stocks overall on Tuesday surged again with the Dow Jones industrial average surpassing a record 30,000. The high Dow mark represents the continuation of an eight-month rebound for stocks since March when financial markets crashed amid the start of the global Covid-19 coronavirus pandemic. The subsequent recovery has been at a torrid pace. The Dow is up more than 60% from its low in March.

Both Southwest Airlines Co.’s 1.25% convertible notes due 2025 and American Airlines Group Inc.’s 6.5% convertible notes due 2025 on Tuesday were higher on the news that a vaccine candidate from AstraZeneca plc and Oxford University is indicating effectiveness in studies, which makes it a third promising candidate to grapple with the fight against the virus.

American Airlines’ 6.5% convertible notes due 2025 continued to fly higher on Tuesday after gains notched on Monday. The American Airlines paper was up 6 or 7 points in the early going to about 113 against a 6.4% gain in the underlying shares to $14.43. The American Airlines convertibles had risen about 4 points on Monday to 104.

Southwest Airlines’ 1.25% convertibles due 2025 were trading around 153 last after closing around 148 on Monday.

Travel, leisure and energy sectors are all beneficiaries of positive Covid-19 vaccine news.

Elsewhere, Western Digital Corp.’s 1.5% convertibles due 2024 gained in active trading and Tilray Inc.’s 5% convertibles due 2023 spiked in lighter volume, while Palo Alto Networks Inc.’s 0.375% convertible notes due 2025 continued to show strength after being one of the major volume movers during Monday’s session, with the notes expanding in the high-volume activity.

The Western Digital notes were flat to lower in higher volume. Western Digital’s shares gained $1.26, or 3.1% on the day, to close at $45.84.

The Tilray convertibles gained 7.5 points to 62 with the underlying stock surging and closing up 17%.

Palo Alto’s 0.375% convertible notes due 2025 were seen changing hands at 117.7, which was flat to higher on the day. The bonds returned to a 117-handle as the stock turned positive on Monday heading into the afternoon and were changing hands at 117.5 near the close.

Xero Ltd., a Wellington, New Zealand-based cloud-based accounting software company, launched a $600 million offering of senior convertible notes due 2025 that are expected to be listed on the official list of the Singapore Exchange Securities Trading Ltd. They will be settled in cash unless the issuer elects to settle the conversion physically with shares.

Goldman Sachs International and Morgan Stanley & Co. International plc are acting as joint lead managers of the deal.

The company’s existing $300 million guaranteed convertible notes due 2023 will be repurchased via reverse book-building with proceeds of the new deal.

Bill.com launches

Bill.com announced a new $750 million issue after the market close on Monday, and the deal was expected to price after the market close on Tuesday.

The notes are non-callable for three years and then are provisionally callable after Dec. 5, 2023 if shares exceed 130% of the conversion price for a specified period of time.

The Rule 144A offering has a $112.5 million greenshoe and was being sold via joint bookrunners Goldman Sachs & Co. LLC, BofA Securities Inc., Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC.

The offering was being talked with a 0% to 0.25% coupon and a 40% to 45% initial conversion premium.

There are no puts, and settlement will be in cash, shares or a combination of cash and shares at the issuer’s option.

There is change-of-control protection via a make-whole adjustment premium of incremental shares delivered upon conversion, and also dividend protection via conversion rate adjustment on any quarterly dividends.

In connection with the offering of notes, the company is entering into capped call transactions with some of the initial purchasers of the notes, according to a company news release.

The proceeds of the new notes will be used to fund the cost of the call spread and for general corporate purposes, which may include working capital, capital expenditures and potential acquisitions and strategic transactions.

Shares of the cloud-based accounting software company, which is based in Palo Alto, Calif., fell $6.04, or 5.3%, to $108.97 on Tuesday.

Mentioned in this article:

American Airlines Group Inc. Nasdaq: AAL

Bill.com Holdings Inc. Nasdaq: BILL

Palo Alto Networks Inc. NYSE: PANW

Southwest Airlines Co. NYSE: LUV

Tilray Inc. Nasdaq: TLRY

Western Digital Corp. Nasdaq: WDC

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