iQIYI’s upsized convertible notes price, expand; Workday, Palo Alto active on earnings

By Abigail W. Adams

Portland, Me., Nov. 30 – The convertible secondary space opened Friday with $650 million in new paper hitting the market.

iQIYI Inc. priced an upsized $650 million of five-year convertible notes after the market close on Thursday.

The new paper dominated activity in the secondary space and was making gains on both an outright and a dollar-neutral basis.

After a soft week, the convertibles secondary space was firmer on Friday.

Strong earnings from convertibles issuers in the tech sector and new paper that was performing well helped buoy the overall market, sources said.

Workday Inc.’s 0.25% convertible notes due 2022 were active as stock surged on a third-quarter earnings beat.

While the notes made large gains on an outright basis, they were seen as unchanged to contracted dollar-neutral.

Palo Alto Networks, Inc.’s 0.75% convertible notes due 2023 were also among the volume movers of Friday’s session.

While the notes improved outright, they were largely unchanged dollar-neutral, a market source said.

iQIYI dominates

iQIYI priced an upsized $650 million of five-year convertible notes at the cheap end of talk with a coupon of 3.75% and an initial conversion premium of 40%.

Price talk had been for a coupon of 3.25% to 3.75% and an initial conversion premium of 40% to 45%, according to a market source.

The initial size of the deal was $500 million with a greenshoe of $75 million.

The new paper dominated activity in the secondary space and was making gains on both an outright and dollar-neutral basis.

They were trading between 100.5 and 100.75 out of the gate but pushed higher as stock improved.

The notes were trading up to 103 in the mid-afternoon.

The majority of trades were outright, but there was also a decent amount on swap, a market source said.

The notes were seen up about 0.5 point dollar-neutral early in the session and up 1 point dollar-neutral in the mid-afternoon.

More than $94 million of the bonds were on the tape by late afternoon.

iQIYI’s American Depositary Shares traded down out of the gate but rose as the session progressed to close the day at $20.31, an increase of 5.73%.

“I guess nobody’s worried about the borrow for now,” a market source said.

While the deal modeled cheap at the midpoint of talk, the borrow on the Beijing-based online entertainment service provider was difficult, sources said.

Trade tensions between the United States and China were also highlighted by sources as a concern involving the deal, which hit the market preceding the closely watched meeting between president Donald Trump and China president Xi Jinping at the G-20 summit.

Everyone seemed to be taking their positions prior to the meeting, a market source said.

Workday in focus

Outside of the new paper, Workday’s 0.25% convertible notes due 2022 saw high volume trading on Friday as stock surged following a third-quarter earnings beat.

The 0.25% notes rose about 8 points outright. They were seen trading at 124.25 early in the session and traded at 125 versus an equity price of $163.51 later in the afternoon.

While one source saw the notes contracting about 1 point dollar-neutral as they rose early in the session, another source saw them as unchanged in the afternoon.

More than $26 million of the bonds were on the tape by the mid-afternoon.

Workday stock jumped 12.87% to close Friday at $164.00.

The 0.25% notes are a $1.15 billion issue, which was held primarily by outright accounts.

Outright accounts were selling on the move with hedge accounts buying, a market source said.

The notes have always traded rich. “This took some of the richness out of them,” a source said.

Workday beat on both the top and bottom line in its third-quarter earnings.

The software company reported earnings per share of 31 cents versus analyst expectations of earnings per share of 14 cents.

The company reported revenue of $743.2 million versus analyst expectations for revenue of $723 million.

Palo Alto’s earnings

Palo Alto’s 0.75% convertible notes due 2023 were also active and making gains on an outright basis after its first-quarter earnings report.

The 0.75% notes climbed 1.5 points outright. They were seen trading at 97.375 versus an equity price of $174.86 in the mid-afternoon.

However, the notes were largely unchanged dollar-neutral, a market source said.

More than $12 million of the bonds were on the tape during Friday’s session.

Palo Alto stock was volatile in response to its first-quarter earnings report.

While stock traded as high as $192.00 during Friday’s session, it closed the day at $172.95, a decrease of 1.76%.

Palo Alto beat earnings expectations on both its top and bottom line.

The cyber-security company reported non-GAAP earnings per share of $1.17 versus analyst expectations for earnings of $1.05.

Revenue was $656 million versus analyst expectations for revenue of $632.1 million.

Despite the large earnings beat, several analysts cut their price target on Palo Alto with some citing concerns that the company’s firewall technology would become obsolete as more companies utilize the cloud.

Mentioned in this article:

iQIYI Inc. Nasdaq: IQ

Palo Alto Networks, Inc. NYSE: PANW

Workday Inc. Nasdaq: WDAY

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