Bloomin’ Brands, Norwegian Cruise Line eyed; Chewy trades up; Chegg, Wayfair expand

By Abigail W. Adams

Portland, Me., May 5 – The convertibles primary market continued to roll out new deals at a rapid pace with issuers attempting to price deals while they can, sources said.

Bloomin’ Brands Inc. plans to price $200 million of five-year convertible notes and NCL Corp. Ltd., a subsidiary of Norwegian Cruise Line Holdings Ltd., plans to sell $650 million four-year exchangeable notes after the market close on Tuesday.

The offerings looked cheap with attractive terms. However, sources were skeptical about the prospects of the companies.

Meanwhile, 2020 Mandatory Exchangeable Trust priced the first mandatory convertible, which is exchangeable for Chewy Inc. stock, since February. The new paper jumped on its aftermarket debut.

Outside of the new paper, earnings related news jumpstarted activity in some outstanding issues.

Wayfair Inc.’s convertible notes skyrocketed on an outright basis as stock soared following its first-quarter earnings report.

Chegg Inc.’s convertible notes also jumped on an outright and dollar-neutral basis following its earnings.

Bloomin’ Brands eyed

Bloomin’ Brands plans to price $200 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 4.5% to 5% and an initial conversion premium of 25% to 30%, according to a market source.

Underwriters were marketing the deal with assumptions of 1,250 basis points over Libor and a 40% vol., according to a market source.

While the deal modeled cheap, sources were skeptical of the offering from the parent company of casual dining chain restaurants such as Outback Steakhouse and Carrabba’s Italian Grill.

While pre-coronavirus pandemic the company was a solid credit, the headwinds it currently faces may be too much for it to recover from, sources said.

NCL on tap

NCL, a subsidiary of Norwegian Cruise Line Holdings, plans to price $650 million of four-year exchangeable notes after the market close on Monday with price talk for a coupon of 5.75% to 6.25% and an initial exchange premium of 20% to 25%, according to a market source.

The notes are exchangeable for series A preference shares of NCL Corp. which will be automatically exchangeable into Norwegian Cruise Line common shares.

Concurrently with the convertible notes offering, the company is also pricing a $600 million offering of senior secured notes due 2024 and a $350 million secondary offering.

The senior secured notes due 2024 priced with a coupon of 12¼% at 99.

The convertibles offering was marketed with assumptions of 1,500 bps over Libor and a 40% vol., according to a market source.

However, another source pegged assumptions at 2,000 bps over Libor and a 45% vol., which modeled about 3.89 points cheap at the midpoint of talk.

“Any company with a ‘going concern’ is going to be 1,000 bps+,” the source said.

In a preliminary earnings release, the cruise line operator raised doubt about its ability to continue as a going concern and said it did not have enough liquidity to meet its obligations over the next 12 months.

The offering was “beyond rescue” financing, a source said.

While the cruise line operator may get “a little pop” from the success of Carnival Cruise’s recent convertible notes offering, sources were skeptical about the deal with the company on the verge of bankruptcy.

The company has suspended operations through June 30.

Chewy’s exchangeables

2020 Mandatory Exchangeable Trust, a newly organized subsidiary of PetSmart Inc., priced $600 million par of $1,000 mandatory three-year exchangeable trust securities after the market close on Monday with a dividend of 6.5% and a threshold appreciation premium of 20%, according to a market source.

Pricing came at the midpoint of talk for a yield of 6.25% to 6.75% and a threshold appreciation premium of 17.5% to 22.5%.

The offering was the first mandatory convertible since early March.

The securities jumped in the aftermarket.

They were marked at 103.25 bid, 103.75 offered early in the session and traded as high as 105 in the afternoon.

Chewy stock traded to a low of $39.70 and a high of $42.26 before closing the day at $42.09, an increase of 7.18%.

Chegg expands

Chegg’s convertible notes made large gains on an outright and dollar-neutral basis following a large earnings beat.

The 0.125% convertible notes due 2025 skyrocketed more than 20 points outright.

They were changing hands at 129.25 in the mid-afternoon.

The 0.125% notes were expanded 2.5 points dollar-neutral, a market source said.

The 0.25% convertible notes due 2023 jumped above double par.

They were up almost 50 points outright and were changing hands at 214.25 in the late afternoon.

The notes were expanded 1 point dollar-neutral.

Chegg stock traded to a low of $53.00 and a high of $61.33 before closing the day at $57.92, an increase of 32.09%.

The education technology company reported earnings per share of 22 cents versus analyst expectations for earnings of 17 cents.

Revenue was $132 million versus analyst expectations for revenue of $122.7 million.

Subscriber numbers increased 35% year over year, numbers which were helped by schools shutting down and students turning to virtual learning due to the coronavirus pandemic.

Wayfair soars

Wayfair’s convertible bonds also skyrocketed on an outright basis as stock soared following its first-quarter earnings report.

Wayfair’s 0.375% convertible notes due 2022 jumped about 30 points outright to 165 in the late afternoon.

The 1.125% convertible notes due 2024 also jumped more than 30 points outright to 158.

The 1.125% notes were trading in the low 40s in March, a source said.

Wayfair’s 1% convertible notes due 2026 jumped 25 points outright to 129.5 in the late afternoon.

Wayfair stock traded to a high of $181.39 an a low of $160.33 before closing the day at $165.88, an increase of 23.69%.

The e-commerce company for home goods reported losses per share of $2.30 versus analyst expectations for losses per share of $2.60.

Revenue was $2.33 billion versus analyst expectations for revenue of $2.31 billion.

The company was also boosted by the coronavirus pandemic with user growth increasing due to stay-at-home orders.

Mentioned in this article:

Bloomin’ Brands Inc. Nasdaq: BLMN

Chegg Inc. NYSE: CHGG

Chewy Inc. NYSE: CHWY

Norwegian Cruise Line Holdings Ltd. NYSE: NCLH

Wayfair Inc. NYSE: W

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