Convertibles flood secondary; Chegg, Middleby, Cinemark expand; Etsy tightens talk

By Abigail W. Adams

Portland, Me., Aug. 19 – The convertibles primary market continued to churn out new deals at a record-setting pace with five deals totaling $2.33 billion pricing after the market close on Tuesday and two deals totaling $900 million set to price after the market close on Wednesday.

New paper from Middleby Corp., Cinemark Holdings Inc., Chegg Inc., Hannon Armstrong Sustainable Infrastructure Capital Inc. and Antero Resources Corp. made their aftermarket debut on Wednesday.

With the exception of Antero Resources, the new paper was expanding on debut.

While the secondary space was deluged with new paper, market players were also eyeing new deals in the works from Etsy Inc. and Sabre Corp.

While some sources found Etsy’s latest offering unappealing, the deal was in demand during bookbuildling with talk tightening.

Etsy tightens talk

Etsy plans to price $650 million of seven-year convertible notes after the market close on Wednesday.

Price talk was revised to a coupon of 0.125% and an initial conversion premium of 50% to 52.5%, according to a market source.

Initial price talk was for a coupon of 0.125% to 0.625% and an initial conversion premium of 47.5% to 52.5%.

“Etsy bitsy terms,” a source said.

The deal was heard to be in the market with assumptions of 300 basis points over Libor and a 40% vol.

Using those assumptions, the fair value of the deal modeled out to 100.31 at the midpoint of initial price talk, a source said.

It was among the tightest of the recent deals to clear the primary market.

“Getting frothy,” a source said.

There was not much cheapness in the deal, and the initial terms were optically unattractive with a low coupon, high premium and long maturity.

The revised pricing caused some investors to walk away from the deal.

However, the notes are non-callable, which was a positive, and Etsy is a repeat issuer of convertible notes.

The story is well-known, and the company has made investors a lot of money in the past.

The e-commerce sector is also hot at the moment as consumers turn to online shopping due to the Covid-19 pandemic.

A portion of the proceeds from the handmade and vintage craft e-commerce company will be used to repurchase a portion of the 0% convertible notes due 2023 in privately negotiated transactions.

Sabre on deck

Sabre plans to price $250 million of three-year $100-par series A mandatory convertible preferred stock after the market close on Wednesday with price talk for a dividend of 6.25% to 6.75% and a threshold appreciation premium of 17.5% to 22.5%.

Books had yet to close in the late afternoon with bookrunners working to get the deal done, a source said.

Middleby expands

Middleby priced an upsized $650 million five-year convertible notes after the market close on Tuesday at par with a coupon of 1% and an initial conversion premium of 33%.

Pricing came at the midpoint of talk for a coupon of 0.75% to 1.25% and toward the midpoint of talk for an initial conversion premium of 30% to 35%, according to a market source.

The greenshoe was also upsized to $97.5 million.

The initial size of the deal was $550 million with a greenshoe of $82.5 million.

The new paper was performing well in the secondary space and trading up on an outright and dollar-neutral basis.

The 1% notes were seen trading around 101.75 with stock off about 1% early in the session, a source said.

They continued to trade around 101.75 while stock continued to lose ground as the session progressed.

The 1% notes were expanded about 2 points dollar-neutral, a source said.

Middleby stock traded to a low of $93.76 and a high of $96.71 before closing the day at $94.21, a decrease of 2.59%.

Cinemark trades up

Cinemark Holdings priced $400 million of five-year convertible notes after the market close on Tuesday at par with a coupon of 4.5% and an initial conversion premium of 30%.

Pricing came at the rich end of talk for a coupon of 4.5% to 5% and at the midpoint of talk for an initial conversion premium of 27.5% to 32.5%, according to a market source.

The initial terms of the deal included a two-year provisional call. However, terms were revised with the notes now non-callable.

The 4.5% notes were performing well in the secondary space.

They traded up to 102 early in the session.

The notes continued to climb and were seen changing hands at 102.375 versus an equity price of $11.12 in the midafternoon.

The notes expanded about 2 points dollar-neutral.

Cinemark stock traded to a high of $11.70 and a low of $11.01 before closing the day at $11.15, an increase of 1.09%.

Chegg expands

Chegg priced an upsized $900 million of six-year convertible notes after the market close on Tuesday at par with a coupon of 0% and an initial conversion premium of 37.5%.

Pricing came at the rich end of revised price talk for a coupon of 0% to 0.125% and in line with revised talk for an initial conversion premium of 37.5%, according to a market source.

Talk tightened from the initial price talk of a coupon of 0% to 0.5% and an initial conversion premium of 32.5% to 37.5%.

The new paper was also trading up on an outright and dollar-neutral basis.

The notes traded up to 102.25 with stock down more than 1% early in the session.

They rose to 103 as stock pared their losses into the afternoon.

The 0% notes expanded 2.75 points dollar-neutral, a source said.

Chegg stock traded to a high of $78.94 and a low of $75.69 before closing the day at $77.62, a decrease of 0.77%.

Hannon Armstrong gains

Hannon Armstrong priced $125 million of three-year convertible notes (BB+/BB+) after the market close on Tuesday at par with a coupon of 0% and an initial conversion premium of 27.5%.

Pricing came in line with talk for a coupon of 0% and at the midpoint of talk for an initial conversion premium of 25% to 30%, according to a market source.

The notes were changing hands around 101 early in the session with stock up more than 2%.

The notes were seen expanded about 0.5 point dollar-neutral in the late afternoon.

Hannon Armstrong stock traded to a high of $39.44 and a low of $37.50 before closing the day at $38.95, an increase of 2.69%.

Antero below par

Antero Resources priced $250 million of six-year convertible notes after the market close on Tuesday at the cheap end of talk with a coupon of 4.25% and an initial conversion premium of 20%.

Price talk was for a coupon of 3.75% to 4.25% and an initial conversion premium of 20% to 25%, according to a market source.

The deal was slow to trade early in Wednesday’s session.

The notes dropped below par in active trading.

They were seen changing hands at 99.5 in the late afternoon.

While below par, the notes were largely flat dollar-neutral, a source said.

Antero Resources stock traded to a high of $3.68 and a low of $3.49 before closing the day at $3.65, an increase of 0.83%.

Mentioned in this article:

Antero Resources Corp. NYSE: AR

Chegg Inc. NYSE: CHGG

Cinemark Holdings Inc. NYSE: CNK

Etsy Inc. Nasdaq: ETSY

Hannon Armstrong Sustainable Infrastructure Capital Inc. NYSE: HASI

Middleby Corp. Nasdaq: MIDD

Sabre Corp. Nasdaq: SABR

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