Pure Storage, BofA Finance on tap; Gannett’s convertibles expand; trading activity low

By Abigail W. Adams

Portland, Me., April 4 – Trading volume in the secondary space was again light on Wednesday, market sources said, with new paper from Gannett Co. Inc. the major volume mover of the day.

However, the primary market is preparing two new deals totaling $700 million – one which will debut on Thursday.

In an overnight deal, Pure Storage plans to price $450 million of five-year convertible notes after the market close on Wednesday.

Price talk is for a coupon of 0% to 0.25% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

BofA Finance LLC plans to price $250 million of five-year cash-settled equity-linked notes tied to Voya Financial Inc. stock after the market close on Thursday.

Price talk is for a coupon of 0% to 0.25% and an initial conversion premium of 37.5% to 42.5%, according to a market source.

BofA Finance is the most recent bank to launch an offering of cash-settled equity-linked notes tied to Voya Financial stock.

JPMorgan Chase Financial Co. LLC and Deutsche Bank AG, London Branch also issued cash-settled equity-linked notes in recent months.

The new notes that priced in an overnight deal from Gannett expanded on their secondary market debut on Wednesday, a market source said.

Shortly after launching, Gannett priced $175 million of 4.75% convertible notes due 2024 after the market close Tuesday with an initial conversion premium of 22.5%.

The notes were priced cheap in the wall crossed deal, which contributed to their secondary market success even as the underlying equity tanked, a market source said.

While the new notes from Gannett helped spur trading volume, the secondary market was “strangely quiet” on Wednesday, a market source said, with most players on the sidelines.

Tesla Inc.’s three tranches of convertible notes continued to be among the main volume movers of a convertibles space where trading volume has been “crazy low” throughout the week, a market source said.

Macquarie Infrastructure Co. LLC’s 2.875% convertible notes due 2019 also continued to see active trading during Wednesday’s session. The 2.875% notes were attracting “short term money guys” interested in the yield, a market source said.

New deals

In an overnight deal, Pure Storage plans to price $450 million of five-year convertible notes that will debut on Thursday.

The deal from the Mountain View, Calif.-based data flash storage company was expected to price shortly after it was launched Wednesday evening.

Price talk was for a coupon of 0% to 0.25% and an initial conversion premium of 37.5% to 42.5%. The deal is being marketed with a credit spread of 225 bps and a 42% vol. The pricing is “aggressive,” a market source said.

In the most recent cash-settled equity-linked notes tied to Voya Financial, BofA Finance plans to price $250 million of the synthetic derivatives after the market close on Thursday.

Price talk is for a coupon of 0% to 0.25% and an initial conversion premium of 37.5% to 42.5%, according to a market source.

JPMorgan priced $350 million of five-year cash-settled equity-linked notes tied to Voya on Jan. 31 with a coupon of 0.25% and an initial conversion premium of 32.5%.

Deutsche Bank priced $300 million of cash-settled equity-linked notes tied to Voya on March 8 with a coupon of 1% and an initial conversion premium of 30%.

JPMorgan’s 0.25% notes were trading as high as 104 until Deutsche launched its deal. The notes sank to par where they remained for most of March.

However, the securities continued to trade down and were in the 97 to 98 range the last week of March, according to Trace data.

Deutsche Bank’s 1% notes traded just north of 101 in a scattered trade on Monday, according to Trace data.

Gannett’s deal

Gannett priced $175 million of six-year convertible notes after the market close on Tuesday with a coupon of 4.75% and an initial conversion premium of 22.5%.

Pricing came at the mid-point of talk for a coupon of 4.625% to 4.875% and at the cheap end of talk for an initial conversion premium of 22.5% to 25%, according to a market source.

The pricing looked cheap, a market source said, which may have been partly to move the overnight deal out the door and partly because Gannett’s stock carries a large dividend.

The new notes were trading close to par at the market open but traded as high as 101.5 during Wednesday’s session. They were expanded about 1 point dollar neutral, a market source said.

“They definitely did well,” another source said.

Gannett stock was down more than 7% early in the session and closed the day at $9.375, a decrease of 5.3%. However, the notes, which move on a 50% delta, were about 4 points cheap from the get go, a market source said.

About $75 million bonds were in play during Wednesday’s session.

Trading volume

While new paper from Gannett was active, the rest of the convertible space was “strangely quiet” early in Wednesday’s session, a market source said.

With the Dow Jones industrial average and the S&P 500 off to another tumultuous start on Wednesday, “it seems like everyone’s on the sidelines,” the source said.

“Nothing’s really moved. There’s really nothing expanding or contracting,” the source said.

While the Dow and the S&P 500 rebounded in the afternoon, trading volume in the secondary space has been abnormally low since the start of the week.

With volatility again roiling the markets, most players are just watching with hedge players adjusting their bets and outright accounts figuring out where they want to be, a market source said.

Volume movers

While the convertible space was largely quiet on Wednesday, convertible notes from Tesla and Macquarie remained active.

Tesla’s three tranches of convertible notes rebounded on an outright basis as the electric car manufacturer’s stock climbed. However, the notes were contracting slightly dollar neutral on their way back up, a market source said.

Tesla’s 0.25% notes due 2019 traded up to 101.5 by the market close on Wednesday after trading in the 98 to 99 range for much of the week. Tesla’s 1.25% notes due 2021 closed the day north of 102 after trading in the 98 to 99 range earlier in the session.

Tesla’s 2.375% notes due 2022 traded north of 107 on Wednesday after trading up to 104 on Tuesday, according to Trace data. Tesla stock closed Wednesday at $286.94, an increase of 7.26%. However, the borrow is getting more expensive than the stock, a market source said.

Macquarie’s 2.875% convertible notes due 2019 were again active in the secondary market with the notes trading between 99 and par.

The notes were largely trading with a 3¾ yield and were attracting “short term money guys,” who like the investment-grade paper and the short time until maturity, a market source.

Mentioned in this article:

Gannett Co. NYSE: GCI

Macquarie Infrastructure Co. LLC NYSE: MIC

Pure Storage NYSE: PSTG

Tesla Inc. Nasdaq: TSLA

Voya Financial Inc. NYSE: VOYA

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