Morning Commentary: Intelsat prices, expands on debut; Twitter, Restoration Hardware active

By Abigail W. Adams

Portland, Me., June 12 – The secondary space was active early in Tuesday’s session with new convertible notes from Intelsat SA hitting the market.

Intelsat priced an upsized $350 million of seven-year convertible notes after the market close on Monday with a coupon of 4.5% and an initial conversion premium of 22.5%.

Pricing came richer than talk for a coupon of 4.75% to 5.25% and at the rich end of talk for an initial conversion premium of 17.5% to 22.5%, according to a market source.

The deal had received upwards of $1 billion of orders at the rich end of talk, a market source said.

The initial size of the deal was $300 million. The greenshoe was also upsized to $52.5 million from $45 million.

The new 4.5% convertible notes due 2025 dominated trading activity in the secondary space with more than $90 million of the bonds changing hands less than an hour after the opening bell, according to a market source.

The notes shot up to 110 outright as Intelsat stock climbed $1. They were expanded 5 to 6 points on a dollar-neutral basis, a market source said.

While the notes priced richer than coupon talk and at the rich end of talk for an initial conversion premium, they still came 5 to 6 points cheap, the source said.

“This gets them to where they should be,” the source said.

Intelsat’s 4.5% notes were moving on about a 65% delta. However, there were not many swap prints on the tape early in the session, a market source said.

While new paper from Intelsat dominated trading activity in the secondary space, Twitter Inc.’s recently priced 0.25% convertible notes due 2024 and Restoration Hardware Holdings Inc.’s 0% convertible notes due 2019 were also active as the stock of both companies broke out to a new 52-week high.

Twitter’s 0.25% notes were up about 2.5 points outright to trade just south of 104 with stock up almost 6% to $43.83 early in Tuesday’s session.

Twitter stock has set a new 52-week high on each of the past three consecutive trading sessions.

The jump in Twitter stock on Tuesday was attributed to JPMorgan analysts raising their price target to $50.00 from $39.00.

Restoration Hardware’s 0% convertible notes due 2019 were trading about 6 to 7 points over the common stock, which soared 30% early in Tuesday’s session, a market source said.

The notes are heavily hedged with a 95% delta and trade like stock, which “has had a crazy run,” the source said. Restoration Hardware’s 52-week low was $44.00.

Stock broke out to a new 52-week high on Tuesday after the company reported an earnings beat in its first-quarter earnings report.

Restoration reported non-GAAP earnings per share of $1.33, beating analyst expectations for earnings of $1.01 per share.

Restoration Hardware stock was up to $154.73 early in Tuesday’s session, an increase of 30.33%.

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