Chegg convertible offering looks cheap, outstanding notes active; GOL Linhas on tap

By Abigail W. Adams

Portland, Me., March 21 – While new deal activity has been light compared to recent weeks, the convertibles primary market will price new paper before the week comes to a close.

Two deals totaling $800 million are slated to price after the market close on Thursday.

Chegg Inc. plans to price $500 million of six-year convertible notes, and GOL Linhas Aereas Inteligentes SA plans to price its offering of $300 million of five-year exchangeable notes.

Both deals look cheap, sources said.

While Chegg’s new offering was in the works, its outstanding 0.25% convertible notes due 2023 were active with holders most likely switching to the new paper, sources said.

Outside of the new paper, Fortive Corp.’s 0.875% convertible notes due 2022 saw high volume activity although with little movement in price.

Ionis Pharmaceuticals Inc.’s 1% convertible notes due 2021 continued to improve with stock breaking out to a new 52-week high over the past week.

Chegg’s new offering

Chegg plans to price $500 million of six-year convertible notes after the market close on Thursday with price talk for a coupon of 0.125% to 0.625% and an initial conversion premium of 27.5% to 32.5%.

Underwriters are marketing the deal with a credit spread of 275 basis points over Libor and a 40% vol., according to a market source.

Based on those assumptions, the deal models about 2.38 points cheap, a source said.

Using a more conservative vol. of 38%, the deal modeled about 1.3 points cheap, another source said.

The company has good cash flow and a decent EBITDA, a market source said.

The deal is coming as a “happy meal” in which approximately $50 million of the proceeds will be used to purchase common stock.

It appears reasonably priced and is expected to do well, a market source said.

Chegg active

Chegg is a repeat issuer of convertible notes with its debut convertible notes offering pricing in March of 2018.

Chegg priced a $300 million issue of five-year convertible notes with a coupon of 0.25% and an initial conversion premium of 32.5% with the greenshoe lifting the total size of the deal to $345 million.

The 0.25% convertible notes have performed well since pricing with the notes already in-the-money.

The 0.25% notes due 2023 were among the most actively traded issues in the secondary space on Thursday.

The notes were changing hands around 158.71 early in the session, a market source said. They dropped alongside stock to 156 later in the afternoon.

Chegg stock closed Thursday at $39.66, a decrease of 3.10%.

More than $5 million of the bonds were on the tape early in the session and more than $23 million traded hands by the late afternoon.

Holders were most likely switching out of the old notes to take positions in the new offering, a market source said.

With Chegg’s 0.25% convertible notes essentially moving alongside equity, some holders, particularly outright accounts, may want more of a bond base, the source said.

GOL Linhas tightens pricing

After an extensive roadshow, GOL Linhas plans to price its offering of $300 million five-year exchangeable notes after the market close on Thursday.

The deal was heard to be doing well during bookbuilding with price talk tightening on Thursday.

Talk tightened to a coupon of 3.75% to 3.875% and an initial exchange premium of 35%, according to a market source.

Price talk was initially for a coupon of 3.75% to 4.25% and an initial exchange premium of 30% to 40%.

The revised pricing was not as beneficial as the original price talk, a market source said. However, the deal must have been in demand.

Timing on the Rule 144A and Regulation S deal was accelerated with the roadshow initially scheduled to run through March 25 with pricing to take place after the market close.

The deal was marketed with a credit spread of 575 bps over Libor and a 40% vol., which modeled about 8 points cheap at the midpoint of initial price talk, according to a market source.

Other sources pegged assumptions as 550 bps over Libor and a 30% vol., which brought the deal to fair value to slightly cheap.

However, the borrow on the Sao Paulo-based airline services operator is difficult. The deal is pricing concurrently with a borrow facility.

Fortive active

Fortive’s 0.875% convertible notes due 2022 saw another day of high-volume activity in the secondary space.

The investment grade paper continued to be in demand, sources said.

The 0.875% convertible notes were changing hands around 104.75. More than $25 million of the bonds were on the tape by the late afternoon.

Fortive stock closed Thursday at $84.22, an increase of 1.48%.

Ionis’ new high

Ionis Pharmaceuticals’ 1% convertible notes due 2021 continued to post gains on Thursday with its stock breaking out to a new 52-week high over the past week.

The 1% convertibles were 133.75 bid, 134.5 offered on Thursday. The notes were improving as stock gains continued, a market source said. Stock has closed above the $80 mark over the past three days.

Ionis hit a new 52-week high of $81.03 in intraday trading on Wednesday.

Stock closed Thursday at $80.50, an increase of 0.36%.

Ionis stock has seen upward momentum since late February when it reported fourth-quarter earnings.

Mentioned in this article:

Chegg Inc. NYSE: CHGG

Fortive Corp. NYSE: FTV

GOL Linhas Aereas Inteligentes SA NYSE: GOL

Ionis Pharmaceuticals Inc. Nasdaq: IONS

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