GEO Group on tap; MicroStrategy, Expedia convertible notes hit aftermarket, trade up

By Abigail W. Adams

Portland, Me., Feb. 17 – The convertibles primary market launched one offering after the market close on Wednesday.

GEO Corrections Holdings Inc. plans to price $200 million of five-year notes exchangeable for the GEO Group Inc.’s shares, according to a company news release.

Further details were not available as of press time.

The new offering comes after the primary market priced $1.8 billion in two deals.

Expedia Group Inc. priced an upsized $900 million of five-year convertible notes (Baa3/BBB-/BBB-) and MicroStrategy Inc. priced an upsized $900 million of six-year convertible notes after the market close on Tuesday.

Expedia and MicroStrategy became the latest convertible issuers to price with 0% coupons; the conversion premium of 72.5% on Expedia’s offering was the highest in recent history.

“The pricing is a little over the top, but we’re in a sweet spot where the market is digesting it,” a source said.

Both deals were trading up on an outright and dollar-neutral basis on their aftermarket debut.

Sources continue to point to a potential pullback in equities as a growing threat for the convertibles market with 0% coupons becoming the industry standard.

However, for the time being, “guys are holding their noses and putting capital to work,” the source said.

Meanwhile, outside of the new paper, Southwest Airlines Co.’s 1.25% convertible notes due 2025 saw heavy volume although the notes were little changed.

Expedia’s record

Expedia priced an upsized $900 million of five-year convertible notes (Baa3/BBB-/BBB-) after the market close on Tuesday at par with a coupon of 0% and an initial conversion premium of 72.5%.

Pricing came in line with initial talk for a fixed coupon of 0% and richer than revised talk for an initial conversion premium of 72.5%, according to a market source.

Initial price talk was for a fixed 0% coupon and an initial conversion premium of 57.5% to 62.5%; however, talk tightened during bookbuilding to an initial conversion premium of 65% to 70%.

The conversion premium on the notes is among the highest in recent history, according to Prospect News data.

There have only been 19 deals since 2001 to price with a conversion premium higher than 72.5%.

Many of those deals priced in 2003 or 2007, such as Carnival Corp.’s $889 million issue of 1.75% convertible notes due 2033, which priced with an initial conversion premium of 93% in April 2003, according to the Prospect News database.

While the Expedia pricing was aggressive, the notes skyrocketed in the aftermarket.

The 0% notes traded as high as 105.25 early in the session. They were changing hands at 104.375 about one hour after the opening bell.

The notes again returned to a 105-handle as equities pared their losses heading into the afternoon.

The notes were changing hands at 105.125 versus a stock price of $153.54 in the late afternoon.

They expanded upwards of 3.5 points early in the session, a source said.

Expedia’s stock traded to a low of $145 and a high of $155.53 before closing the day at $154.04, an increase of 4.19%.

MicroStrategy active

MicroStrategy priced an upsized $900 million of six-year convertible notes after the market close on Tuesday at par with a coupon of 0% and an initial conversion premium of 50%.

Pricing came at the rich end of talk for a coupon of 0% to 0.5% and an initial conversion premium of 45% to 50%, according to a market source.

The greenshoe was also upsized to $150 million. The initial size of the offering was $600 million with a greenshoe of $90 million.

While the notes modeled rich based on underwriters’ assumptions of 350 bps over Libor and a 45% vol., they traded up on an outright and dollar-neutral basis in the aftermarket.

The 0% notes traded in a range of par to 103 shortly after the opening bell and were changing hands at 101.25 about one hour into the session.

The notes remained on a 101-handle heading into the late afternoon.

They were seen changing hands at 101.75 versus a stock price of $926.54 in the late afternoon.

MicroStrategy’s recently priced deep-in-the-money 0.75% convertible notes due 2025 were also active on Wednesday and trading off with stock.

The 0.75% convertible notes dropped 9.5 points outright. They were changing hands at 251.375 versus a stock price of $931.69 in the late afternoon.

MicroStrategy’s stock continued to sell off on Wednesday.

Stock traded to a high of $954 and a low of $878 before closing the day at $941.80, a decrease of 1.38%.

Stock was down more than 7.8% on Tuesday on the heels of the company’s latest convertible notes offering.

Proceeds from MicroStrategy’s latest convertible notes offering will be used to purchase Bitcoin, just as proceeds from the 0.75% notes were used to purchase Bitcoin.

The offerings from MicroStrategy provided investors a way to play the cryptocurrency while also having some downside protection, sources previously said.

Since the Tysons Corner. Va.-based business intelligence and analytics company priced its $650 million issue of 0.75% convertible notes due 2025 in early December, Bitcoin has skyrocketed.

Bitcoin hit a new all-time high of $52,536.47 on Wednesday.

The cryptocurrency was valued at $18,543 when MicroStrategy priced the 0.75% notes on Dec. 9.

Southwest active

Southwest Airlines’ 1.25% convertible notes due 2025 were active on Wednesday although the notes were little changed in the heavy volume.

The 1.25% notes were changing hands at 157.625 versus an equity price of $52.05 in the late afternoon, according to a market source.

There was $25 million in reported volume.

Southwest Airlines’ stock traded to a high of $52.53 and a low of $51.21 before closing the day at $52.44, an increase of 0.9%.

Mentioned in this article:

Carnival Corp. NYSE: CCL

Expedia Group Inc. Nasdaq: EXPE

GEO Group Inc. NYSE: GEO

MicroStrategy Inc. Nasdaq: MSTR

Southwest Airlines Co. NYSE: LUV

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