Vishay, Mindbody convertibles on tap; market eyes Twitter, Avaya deals; Okta active

By Abigail W. Adams

Portland, Me., June 6 – Many in the convertibles secondary space have been looking to the primary market and questioning what the week will bring for new deals. The answer came on Wednesday with $1.3 billion in two deals set to price after the market close and $725 million in two deals set to price after the market close on Thursday.

Twitter, Inc. plans to price $1 billion of six-year convertible notes and Avaya Holdings Corp. plans to price $300 million of five-year convertible notes after the market close on Wednesday.

Vishay Intertechnology, Inc. plans to sell $525 million of seven-year convertible senior notes after the market close on Thursday with price talk for a coupon of 2.5% to 3% and an initial conversion premium of 22.5% to 27.5%, according to a market source.

Proceeds will be used to repurchase a portion of the company’s outstanding convertible debentures due 2040, 2041 and 2042 through individually negotiated agreements with a limited number of holders, according to a company news release.

Mindbody Inc. plans to price $200 million of five-year senior unsecured convertible notes after the market close on Thursday with price talk for a coupon of 0.125% to 0.625% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

While the market eyed the new deals in the pipeline, the secondary space was firm. “Things are holding up really well,” a market source said.

The secondary space was soft in the run up to the last round of billion dollar deals, but that was not the case on Wednesday. “It’s a good sign,” the source said.

As the market eyes Twitter’s new deal, the social networking site’s 1% and 0.25% convertible notes were active in the secondary space with the 1% notes again a volume leader.

Okta Inc.’s 0.25% convertible notes due 2023 were also active in the run up to the company’s earnings report, which was announced after the market close. With the notes one of the high performers of the year, holders were cashing in, a market source said.

Atwitter over Twitter

Twitter plans to price $1 billion of six-year convertible notes after the market close on Wednesday with price talk for a coupon of 0.125% to 0.625% and an initial conversion premium of 40% to 45%, according to a market source.

The deal is being marketed with a credit spread of 150 basis points over Libor and a 40% vol., according to a market source. “Nothing exciting there,” a market source said.

Sources pegged the deal at fair value or about 0.25 point cheap at the midpoint of talk.

The new convertible notes offering from Twitter was no surprise given how much Twitter stock has come in since it priced its two tranches of convertible notes in 2014, a market source said.

Twitter stock was $52.64 when the company priced its 0.25% convertible notes due 2019 and 1% convertible notes due 2021.

With the 0.25% notes maturing shortly, “it would have been a stunner if they hadn’t done one this year,” the source said.

Proceeds from the offering will be used for the purchase of the 0.25% notes at maturity. “They’re prefunding the 0.25% notes, that’s a benefit,” a market source said.

As the primary prepared a new offering from Twitter, the company’s 0.25% and 1% convertible notes were active in the secondary space.

The 0.25% notes have a low delta and trade cheap for a paper with one and half years until maturity, a market source said.

The notes had been trading in the 96 range with the yield north of 3%. They traded up to 97 on Wednesday.

Twitter’s 1% convertible notes due 2021 have a higher delta but still carry a large premium, a market source said. The 1% notes were down about 0.25 point outright to trade at 95.25 on Wednesday.

With both the 0.25% and 1% notes carrying a premium of almost 95%, equity accounts will be moving out of the old convertible notes to take advantage of the lower premium on the new ones, a market source said.

The pricing of the convertible notes comes just before Twitter joins the S&P 500 on Thursday. Twitter stock broke out to a new 52-week high on Tuesday after the announcement.

Twitter stock see-sawed between gains and losses on Wednesday but closed the day at $40.10, an increase of 0.75%.

Avaya’s deal

Avaya Holdings plans to price $300 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 2% to 2.5% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The deal is being marketed with a credit spread of 450 bps over Libor and a 32% vol., a market source said. Sources pegged the deal between fair value and 0.86 point cheap.

“That spread looks a little tight,” a market source said.

Avaya Holdings emerged from reorganization about one year ago and has a $3 billion term loan that the company is trying to refinance at Libor plus 425 bps, sources said.

However, the equity of companies that emerge from bankruptcy is typically cheap. “They may be selling the cheap equity story,” a market source said.

Avaya is an old telecom tech name that will appeal to high-yield investors, another source said.

The deal is expected to do well although it will not appeal to as wide an audience as Twitter’s offering, the source said.

Okta active

Okta’s 0.25% convertible notes due 2023 were active in the secondary space in the run up to the company’s first-quarter earnings report, which was announced after the market close.

The notes were down about 2 points outright to trade at 128 with stock down $1.

Okta stock closed Wednesday at $54.14, a decrease of 0.81%.

The 0.25% convertible notes have been one of the year’s high performers, a market source said. The trading activity was sparked by some holders taking money off the table and cashing in on Okta’s gains.

The notes have made gains on an outright and dollar-neutral basis since hitting the secondary space.

Okta priced $300 million of the five-year convertible notes at par on Feb. 23 when stock was $35.82.

Mentioned in this article:

Avaya Holdings Corp. NYSE: AVYA

Okta Inc. Nasdaq: OKTA

Mindbody Inc. Nasdaq: MB

Twitter, Inc. NYSE: TWTR

Vishay Intertechnology, Inc. NYSE: VSH

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