Market eyes Vishay, Mindbody convertibles; Twitter dominates trading; Avaya expands

By Abigail W. Adams

Portland, Me., June 7 – The primary and secondary market in the convertibles space was in high gear on Thursday with $1.3 billion of new paper hitting the secondary market and two deals totaling $725 million in the works with pricing expected after the market close.

Twitter Inc.’s newly priced 0.25% convertible notes due 2024 dominated trading activity in the secondary space.

While the 0.25% notes were “trading close to home” on an outright basis, they were up about 0.5 point dollar neutral, sources said.

Avaya Holdings Corp.’s newly priced 2.25% convertible notes due 2023 were also active with the notes seeing gains on an outright and dollar-neutral basis.

In a reversal of a previous trend of rich pricing, recent deals have priced at the midpoint or cheap end of talk, which sources attributed to a combination of the onslaught of new paper from tech companies and investor push back against the aggressive pricing seen earlier in the year.

As the secondary market worked to digest new paper from Twitter and Avaya, new deals in the pipeline from Vishay Intertechnology, Inc. and Mindbody Inc. were also eyed.

Vishay’s offering of $525 million seven-year convertible notes looks cheap with the attractive pricing most likely an incentive for holders of Vishay’s outstanding convertible notes to move to the new ones.

While Mindbody modeled fair value based on the assumptions used by underwriters, sources questioned those assumptions given the limited history of the company.

“It’s a joke,” a market source said.

On Monday and Tuesday, the secondary space was asking what the week would bring for new deals. The answer on Wednesday was $2.03 billion over four deals.

However, with an earnings-related blackout quickly approaching, new deal volume is expected to die down with not too many more large deals on the horizon, a market source said.

However, the convertibles space is hot right now and the competitors of recent issuers may be considering jumping in too, a market source said.

At the mids

The rich pricing of deals that came in the early part of the year was a lament of the secondary market.

However, that trend is beginning to change with the deals over the past few weeks coming at the midpoint or cheap end of talk.

The reversal is the result of the onslaught of technology paper and investor pushback against aggressive pricing, a market source said.

“We finally got pushback,” a market source said. “Some of it was because of all the software deals; some of it was the pricing was too aggressive. I think it’s a combination of both.”

With the number of tech companies issuing convertible notes at record levels in 2018, the demand for the paper is waning.

“They’re all interesting companies but at some point you want something else in your portfolio,” the source said.

Future software deals are expected to price at the midpoint of talk. However, deals from companies outside of the sector may still be able to price rich, the source said.

Twitter dominates

Twitter’s new 0.25% convertible notes due 2024 dominated trading activity in the secondary market with the notes expanding dollar neutral although they hovered around par on an outright basis.

Twitter priced $1 billion of six-year convertible notes after the market close on Wednesday with a coupon of 0.25% and an initial conversion premium of 42.5%.

Pricing came in line with price talk for a coupon of 0.125% to 0.625% and at the midpoint of talk for an initial conversion premium of 40% to 45%, according to a market source.

The 0.25% notes dominated trading activity in the secondary space with more than $230 million of the bonds traded by late afternoon, accounting for nearly one third of the $677 million in trading volume.

The notes were seen trading between 100.25 and 99.5 with stock down between 30 cents and $1 early in the session. They were seen trading between 100.125 and 100.625 later in the afternoon.

The notes were up about 0.5 point dollar neutral, a market source said.

The convertible notes offering debuted in the secondary market as Twitter stock made its entrance into the S&P 500.

Twitter stock closed Thursday at $39.70, a decrease of 1%.

Avaya expands

Avaya’s new 2.25% convertible notes due 2023 made gains on an outright and dollar-neutral basis on their secondary market debut.

Avaya priced $300 million of five-year convertible notes after the market close on Wednesday at the midpoint of talk with a coupon of 2.25% and an initial conversion premium of 30%.

Price talk was for a coupon of 2% to 2.5% and an initial conversion premium of 27.5% to 32.5%.

The notes were seen trading between 100.5 and 101 and were expanded about 0.25 point dollar neutral early in the session, a market source said.

The notes continued to improve on an outright and dollar-neutral basis into the afternoon. They were seen trading between 100.75 and 101.25 in the afternoon and were up about 0.75 point dollar neutral, a source said.

Avaya’s deal was “a standard deal with a nice range,” a market source said. “It priced well.”

The deal was heavily allocated to hedge accounts with about 60% of the deal put up on swap, a market source said.

The delta was about 55%.

Avaya’s 2.25% convertible notes were second only to Twitter in trading activity on Thursday with about $64 million of the bonds traded by late afternoon.

Vishay’s kiss

Vishay’s $525 million offering of seven-year convertible notes looks 2 to 4 points cheap, which may be an effort to entice holders of the semiconductor company’s outstanding convertible notes to sell them back to the company, a market source said.

Price talk for the offering is for a coupon of 2.5% to 3% and an initial conversion premium of 22.5% to 27.5%.

The deal is being marketed with a credit spread of 300 basis points over Libor and a 28% vol., sources said.

The deal looked to be about 2 to 2.5 points cheap based on underwriters’ assumptions and up to 4 points cheap with a tighter credit spread, a market source said.

It is rare in the current environment for deals to come as cheap as Vishay’s offering, a market source said.

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.

“If that’s what they’re doing, they have to give [holders] a kiss on the new deal,” a market source said.

Vishay’s outstanding convertible notes are all in the money and are currently non-callable.

The outstanding convertible notes were making gains on Thursday as Vishay’s stock shot up more than 13% with the trading volume of common stock more than 20x the 90-day average.

Vishay’s 2.25% convertible notes due 2040 jumped about 30 points outright to trade up to 195 on Thursday, according to Trace data.

The 2.25% convertible notes due 2041 were quoted about 11 points higher outright at 127.28. The 2.25% convertible notes due 2042 were quoted about 24 points higher outright at 224.

The kiss apparently worked with holders of the old notes moving to the new ones, a market source said.

The majority, if not all, of Vishay’s new convertible note offering will be put up on swap, the source said.

Mindbody eyed

Mindbody’s $200 million offering of five-year convertible notes models out to fair value “at best,” a market source said.

Price talk is for a coupon of 0.125% to 0.625% and an initial conversion premium of 27.5% to 32.5%. The deal is being marketed with a credit spread of 300 bps over Libor and a 38% vol.

“It’s a joke,” a market source said. “The assumptions are completely off base.”

Mindbody went public in 2015 and has no real history, a market source said.

However, there is demand for the convertible notes offering, the source said. The deal may appeal to equity holders interested in holding debt as opposed to equity.

Mentioned in this article:

Avaya Holdings Corp. NYSE: AVYA

Mindbody Inc. Nasdaq: MB

Twitter Inc. NYSE: TWTR

Vishay Intertechnology, Inc. NYSE: VSH

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.