Inphi convertible offering eyed; 2U below par on secondary debut; Cree holds onto gains

By Abigail W. Adams

Portland, Me., April 21 – The convertible primary market continued its steady pace of new deal activity on Tuesday with another overnight offering on deck, despite a brutal day for equities.

Inphi Corp. plans to price an offering of five-year convertible notes after the market close on Tuesday.

The deal was heard to be doing well during bookbuilding with the deal upsizing to $440 million from $330 million.

Meanwhile, new paper was in focus in the secondary space with 2U, Inc.’s newly priced 2.25% convertible notes due 2025 making their aftermarket debut as stock sold off alongside the broader market.

While the notes sank below par in active trading, they saw a slight dollar-neutral expansion.

Booking Holdings Inc.’s convertible notes continued to dominate the volume charts with the notes dropping outright as stock extended its losses.

However, Cree Inc.’s recently priced 1.75% convertible notes due 2026 held onto their gains.

Credit spreads widened and equities sank further into the red on Tuesday with WTI crude oil futures continuing to drag down markets as the contract for June plunged below $10 a barrel in intraday trading.

Tuesday was the first day in the past few weeks that the convertibles secondary space was better for sale – a combination of the influx of new paper and soft market conditions, a source said.

Inphi eyed

Inphi plans to price an offering of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.75% to 1.25% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be oversubscribed during bookbuilding with the offering upsizing to $440 million from the initial deal size of $330 million, a market source said.

The deal was marketed with assumptions of 500 basis points over Libor and a 40% vol., according to a market source.

Using those assumptions, the deal modeled about 4.41 points cheap at the midpoint of talk, a source said.

However, another source pegged assumptions at 700 bps over Libor and a 45% vol., which eroded the cheapness of the deal.

However, the deal still looked 2.13 points cheap at the midpoint of talk with the wider credit spread.

In normal circumstances, the 500 bps credit spread would have been warranted.

However, the Santa Clara, Calif.-based semiconductor company has significant exposure to Asia with one-third of its revenue coming from China and a substantial amount of additional sales in other Asian countries, the source said.

While some sources were skeptical about the credit spread, the pricing of the deal looked attractive, another source said.

The deal was heard to be coming on the rich end of talk.

In connection with the new offering, the company plans to exchange up to $100 million of the principal amount of its 1.125% convertible notes due Dec. 1, 2020 for cash and stock in privately negotiated transactions.

The 1.125% notes last traded around 243.75 and had $230 million outstanding, according to Trace data.

2U below par

2U’s newly priced 2.25% convertible notes due 2025 hit the secondary space on a brutal day for equities and immediately dropped below par.

2U priced an upsized $330 million five-year convertible notes after the market close on Monday at par at the midpoint of talk with a coupon of 2.25% and an initial conversion premium of 27.5%.

Price talk was for a coupon of 2% to 2.5% and an initial conversion premium of 25% to 30%, according to a market source.

The greenshoe was also upsized to $50 million. The initial size of the offering was $300 million with a greenshoe of $45 million.

While the offering was heard to be heavily oversubscribed, the new notes dropped below par soon after the opening bell.

The notes traded as low as 97 but were changing hands at 99.5 in the late afternoon. They closed the day around 98.

While down outright, the notes saw a slight dollar-neutral expansion, closing the day up 0.25 to 0.375 point, a market source said.

The 2.25% notes dominated activity in the secondary space with $42 million in reported volume in the late afternoon.

The notes were priced to perfection, a source said. However, they made their secondary market debut on a rough day for equities.

2U stock traded to a low of $20.25 and a high of $22.16 before closing the day at $21.31, a decrease of 3.88%.

Cree holds

Cree’s recently priced 1.75% convertible notes due 2026 were holding onto their gains in active trading in the secondary space.

The notes traded as high as 103 during Tuesday’s session but stood poised to close the day at 102.

They were moving in line dollar-neutral, a market source said.

Cree stock traded to a low of $34.17 and a high of $35.80 before closing the day at $34.87, a decrease of 1.3%.

Cree’s 1.75% convertible notes made their secondary market debut last Friday and shot up about 2.625 points dollar-neutral.

They continued to improve on a dollar-neutral basis on Monday, gaining another 0.5 point, a source said.

Booking Holdings active

Booking’s three tranches of convertible notes continued to top the volume charts as stock sold off on a dismal outlook for the travel industry.

The travel fare aggregator’s 0.9% convertible notes due 2021 again fell below par on Tuesday.

They were changing hands at 99.875 in the late afternoon, according to a market source.

With more than $31.5 million on the tape, the notes were second only to 2U in reported volume.

Booking’s 0.35% convertible notes due June 15, 2020 were changing hands at 107.25 versus a stock price of $1,350.16 in the late afternoon.

The bonds saw more than $20 million in reported volume.

Bookings recently priced 0.75% convertible notes due 2025 dropped 2 points outright to 108.5 with more than $17 million in reported volume.

Booking stock traded to a low of $1,317.40 and a high of $1,387.74 before closing the day at $1,342.22, a decrease of 4.92%.

Mentioned in this article:

2U, Inc. Nasdaq: TWOU

Booking Holdings Inc. Nasdaq: BKNG

Cree Inc. Nasdaq: CREE

Inphi Corp. NYSE: IPHI

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