Morning Commentary: Convertibles primary on fire; $3.23 billion in six deals on deck

By Abigail W. Adams

Portland, Me., March 2 – The convertible bond primary market entered March like a lion and unleashed a deluge of new deals.

After pricing $1.675 billion in three deals after the market close on Monday, the primary market plans to price $3.23 billion over six deals after the market close on Tuesday.

“Too many deals!!!” said one source. “Nuts,” said another source. “This will be a month never seen before in convert issuance,” said a third source.

New offerings from PennyMac Corp., Beyond Meat Inc., Haemonetics Corp., Ceridian HCM Holding Inc., Cable One Inc. and Fastly Inc. were on deck for after the market close on Tuesday.

The deals ranged from rich, to fair value to cheap based on underwriters’ assumptions, sources said.

Meanwhile, new paper from Shake Shack Inc., MannKind Corp. and Twitter Inc. made its aftermarket debut on Tuesday.

Their performance was mixed with Shake Shack’s new convertible notes trading up on debut and MannKind’s and Twitter’s convertible notes dropping below par.

PennyMac eyed

PennyMac plans to price $200 million of five-year notes exchangeable for PennyMac Mortgage Investment Trust stock after the market close on Tuesday with price talk for a coupon of 5.25% to 5.75% and an initial exchange premium of 12.5% to 17.5%, according to a market source.

The deal was heard to be marketed with assumptions of 575 basis points over Libor and a 20% vol., a source said.

Using those assumptions, the deal looked to be fair value at the midpoint of talk.

“It’s nice to see some yield,” a source said.

However, the exchangeable notes from the low vol. REIT offered little upside.

Beyond Meat looks rich

Beyond Meat plans to price $750 million of six-year convertible notes after the market close on Tuesday with price talk for a fixed coupon of 0% and an initial conversion premium of 47.5% to 52.5%, according to a market source.

The deal was heard to be in the market with assumptions of 300 bps over Libor and a 45% vol.

Using those assumptions, the deal looked 0.875 point rich at the midpoint of talk, a source said.

The plant-based food company is heavily shorted, a source said, with 18.43% of the float held by short-sellers.

Haemonetics on tap

Haemonetics plans to price $425 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 40% to 45%, according to a market source.

The deal was heard to be in the market with assumptions of 275 bps over Libor and a 38% vol., a source said.

Using those assumptions, the deal looked 1.21 points cheap rich at the midpoint of talk, a source said.

Ceridian eyed

Ceridian plans to sell $500 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 47.5% to 52.5%, according to a market source.

The deal was heard to be in the market with assumptions of 250 bps over Libor and a 40% vol., according to a market source.

Using those assumptions, the deal looked about 1 point cheap at the midpoint of talk.

Cable One’s two tranches

Cable One plans to price an aggregate of $600 million convertible notes in five- and seven-year tranches after the market close on Tuesday.

The deal consists of a $400 million tranche of five-year notes with price talk for a fixed coupon of 0% and an initial conversion premium of 25% to 30%, according to a market source.

The deal also includes a $200 million tranche of seven-year notes with price talk for a coupon of 0.75% to 1.25% and an initial conversion premium of 25% to 30%.

The 2026 notes were heard to be in the market with assumptions of 250 bps over Libor and a 33% vol.

The 2028 notes were heard to be marketed with assumptions of 275 bps over Libor and a 32% vol.

Twitter below par

Twitter priced $1.25 billion of five-year convertible notes after the market close on Monday at par with a coupon of 0% and an initial conversion premium of 67.5%, according to a company news release.

Pricing came in line with talk for a fixed coupon of 0% and at the midpoint of talk for an initial conversion premium of 65% to 70%, according to a market source.

As predicted, the notes had a sloppy start in the secondary space.

The notes were changing hands at 98.375 early in the session.

Twitter’s stock was trading at $75.78, a decrease of 2.41%, shortly before 11 a.m. ET.

Shake Shack active

Shake Shack priced $225 million of seven-year convertible notes after the market close on Monday at par at the rich end of talk with a coupon of 0% and an initial conversion premium of 45%, according to a company news release.

Price talk was for a coupon of 0% to 0.25% and an initial conversion premium of 40% to 45%, according to a market source.

The notes traded up on an outright basis.

They were changing hands at 102 about an hour after the opening bell.

Shake Shack’s stock was $120.13, an increase of 2.22%, shortly before 11 a.m. ET.

MannKind volatile

MannKind sold an upsized $200 million, from $150 million, of five-year convertible notes after the market close on Monday at par at the midpoint of talk with a coupon of 2.5% and an initial conversion premium of 30%, according to a company news release.

Price talk was for a coupon of 2.25% to 2.75% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The notes were volatile on their aftermarket debut.

They traded as high as 101.25 but came in to change hands at 99.25 about one hour after the opening bell.

MannKind’s stock was $3.90, a decrease of 2.87%, shortly before 11 a.m. ET.

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