Rapid7, NII Holdings ‘well received’; Tesla drop continues; Bookings.com active; Encore expands

By Abigail W. Adams

Portland, Me., Aug. 9 – The convertibles space opened Thursday with $300 million in new paper after two upsized deals priced prior to the market open.

Rapid7, Inc. sold an upsized $200 million of five-year convertible notes. The new notes dominated secondary market activity and expanded on their debut.

NII Holdings, Inc. priced an upsized $100 million of five-year convertible notes. While the notes were slow to trade, they were also up on an outright and dollar-neutral basis, sources said.

All eyes continue to be on Tesla Inc. as the Securities and Exchange Commission scrutinizes chief executive officer Elon Musk’s bombshell tweets about taking the company private.

The convertible notes continued to trade down as the stock returned to its pre-Tuesday levels.

Booking Holdings Inc.’s convertible notes were active on the tape and trading down on an outright basis as the stock fell post second-quarter earnings.

Encore Capital Group Inc.’s recently priced 4.5% convertible notes were up on an outright and dollar-neutral basis as the stock soared after an earnings beat.

‘Happy’ about Rapid7

Rapid7 priced $200 million of five-year convertible notes prior to the market open on Thursday at the cheap end of talk with a coupon of 1.25% and an initial conversion premium of 30%.

Price talk had been for a coupon of 0.75% to 1.25% and an initial conversion premium of 30% to 35%, according to a market source.

The greenshoe was also upsized to $30 million.

The initial size of the deal had been $175 million with a greenshoe of $26.25 million.

The new paper dominated trading activity in the secondary space with more than $57 million of the bonds on the tape about an hour into the session.

“They were the top cheese today,” a market source said.

There was good volume in both swap and outright trades.

The notes were seen trading in the 103 to 103.75 range on an outright basis. They were expanded about 1.5 to 2 points dollar-neutral, sources said.

They were trading on a 60% delta, a source said.

“This is just what everyone needed,” a market source said. “Everyone’s happy.”

The secondary success of the Rapid7 notes was attributed to the pricing.

“The market got them to price it cheap and then stock participated,” a source said.

Rapid7 stock closed Thursday at $32.9, an increase of 2.84%.

NII well received

NII Holdings priced an upsized $100 million of five-year convertible notes prior to the market open on Thursday with a coupon of 4.25% and an initial conversion premium of 25%.

Pricing came at the cheap end of talk for a coupon of 3.75% to 4.25% and at the midpoint of talk for an initial conversion premium of 22.5% to 27.5%.

The greenshoe was also upsized to $15 million.

The initial size of the deal had been for $75 million with a greenshoe of $11.25 million.

The new paper was slow to trade with only about $4.5 million seen on the tape in the late afternoon.

The deal was described as “clubby” and was not expected to trade much.

“You usually don’t see too many flippers with these small deals,” a market source said.

However, the notes that did trade in the secondary space were performing well. They were seen changing hands between 102.5 to 103 on an outright basis.

They were seen trading at 102.5 versus an equity price of $4.95 in the mid-afternoon. The notes were expanding dollar-neutral, a market source said.

NII Holdings stock closed Thursday flat at $4.97.

“These were both well received and well performing deals,” a source said.

Funding secured

Tesla’s convertible notes remained in focus in the secondary space as CEO Musk continued to dominate headlines.

“Tesla’s in the front of everyone’s mind,” a market source said.

The convertible notes and stock continued to fall with no source stepping forward to support Musk’s claim on Tuesday that funding had been secured to take the company private.

Tesla’s 0.25% convertible notes due 2019 were down about 2.75 points outright. They were seen trading at 108.67 versus an equity price of $354.41 in the mid-afternoon with more than $18 million of the bonds on the tape.

Tesla’s 1.25% convertible notes due 2021 were down about 4 points outright to trade at 112.875 versus an equity price of $353.43 with about $19 million of the bonds on the tape.

Tesla’s 2.375% convertible notes due 2022 were down about 4.5 points outright to trade at 121.125 versus an equity price of $353.47 with about $12 million of the bonds on the tape.

The notes were largely trading in line on a dollar-neutral basis for most of Thursday’s session. However, with the stock continuing to drop into the late afternoon, they may begin to come in, a market source said.

Tesla stock closed Thursday at $352.47, a decrease of 4.83%.

Tesla stock has now returned to its pre-Tuesday levels before news broke that Saudi Arabia’s sovereign wealth fund had taken a 3% to 5% stake in the company and Musk tweeted he had secured the funding to take the company private for $420 a share.

The Securities and Exchange Commission, which had been gathering information on Tesla’s public announcements on manufacturing and sales targets, is now also examining Musk’s Tuesday tweets, Bloomberg reported.

Booking’s earnings

Booking Holdings’ convertible notes were volume leaders on Thursday and dropping on an outright basis as the stock sank post the online travel booking company’s second-quarter earnings.

Booking’s 0.9% convertible notes due 2021 were down about 3 points to trade at 116.5 versus an equity price of $1,922.07 with more than $33 million of the bonds on the tape.

Booking’s 0.35% convertible notes due 2020 dropped more than 9 points outright in intra-day trading.

They were seen trading at $147.634 versus an equity price of $1,924.45 with more than $20 million of the bonds on the tape.

Booking’s stock closed Thursday at $1,942.59, a decrease of 5.01%.

Booking beat analyst expectations with earnings per share of $20.67 versus analyst expectations of $17.44 per share.

However, Booking shares stumbled after third-quarter guidance of $36.70 fell short of analyst expectations of $39.79.

Encore jumps

Encore Capital’s 4.5% convertible notes due 2023 saw large outright gains and a dollar-neutral expansion as the stock soared after the company’s second-quarter earnings report.

The 4.5% notes were up about 8 points outright.

They were seen trading at 108.85 versus an equity price of $40 with about $5 million of the bonds on the tape by late afternoon.

The notes were also improving on a dollar-neutral basis.

“They are definitely starting to build some premium,” a market source said.

Encore stock closed Thursday at $40, an increase of 12.52%.

Encore reported earnings per share of $1.33, which beat analyst expectations for earnings per share of $1.11.

Mentioned in this article:

Booking Holdings Inc. Nasdaq: BKNG

Encore Capital Group Inc. Nasdaq: ECPG

NII Holdings, Inc. Nasdaq: NIHD

Rapid7, Inc. Nasdaq: RPD

Tesla Inc. Nasdaq: TSLA

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