Snap convertibles on deck; Proofpoint notes in focus on buyout; NIO paper catches a bid

By Abigail W. Adams

Portland, Me., April 26 – The convertibles primary market returned to action on Monday with one large offering on deck.

Snap Inc. plans to price $1 billion of six-year convertible notes after the market close on Tuesday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 45% to 50%, according to a market source.

Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC are bookrunners for the Rule 144A offering, which carries a greenshoe of $150 million.

The large offering from Snap snapped the convertibles primary market’s dry spell.

However, the pace of new issuance in the coming months is not expected to rival the first quarter, sources said.

While the earnings season blackout has put a damper on new issuance, prospective issuers have also postponed offerings as equity markets have stabilized.

With the VIX index near a 52-week low, pricing has changed for the primary market.

“The 0s, up 70 aren’t really possible anymore,” a source said.

Several companies also front-loaded their capital raises to the first quarter due to the uncertainty surrounding the market’s reaction to the current administration.

Meanwhile, it was a quiet day in the convertibles secondary space with many on the sidelines as the market awaits a slew of high-profile earnings reports and the latest announcement from the Federal Reserve following its meeting, which is set to conclude on Wednesday.

Proofpoint Inc.’s 0.25% convertible notes due 2024 were in focus and skyrocketed on an outright basis following news the company would be taken private.

Nio Inc.’s 0.5% convertible notes due 2027 were active and bouncing off their lows as stock caught a bid during Monday’s session.

Proofpoint eyed

Proofpoint’s 0.25% convertible notes due 2024 dominated activity on Monday following news Thoma Bravo was taking the company private in a $12.3 billion transaction.

The notes shot up more than 17 points outright.

The notes closed out the previous week at 107.

They were changing hands at 124.5 late Monday afternoon.

While Proofpoint’s stock skyrocketed on the announced acquisition, the notes were trading based on their takeout, a source said.

Outright holders were the major winners of the transaction given the bounce in the dollar-price of the bonds.

However, hedge players were also set to benefit on the takeout with those playing the notes on swap set to make 1.5 points dollar-neutral, a source said.

“Not a huge winner, but at least not a loser,” a source said.

Proofpoint’s stock traded to a low of $172.24 and a high of $174.25 before closing the day at $172.70, an increase of 31.05%.

News broke on Monday that Thoma Bravo was taking the software company private in a $12.3 billion transaction.

Proofpoint’s shareholders will receive $176 per share, according to the terms of the agreement.

The agreement includes a “go-shop” clause that gives Proofpoint the ability to consider alternative proposals, which expires on June 9.

The acquisition is expected to close in the third quarter.

“That’s today’s excitement,” a source said.

Nio gains

Nio’s 0.5% convertible notes due 2027 were active and trading off their lows as stock caught a bid during Monday’s session.

The 0.5% notes gained 3.5 points outright with stock up almost 4%.

They traded up to 86.5 in the late afternoon.

The notes improved about 1 point dollar-neutral, a source said.

Nio’s American Depositary Shares traded to a high of $43.22 and a low of $40.86 before closing the day at $42.62, an increase of 3.75%.

Nio’s convertible notes and ADSs have been under pressure over the past month.

The 0.5% convertible notes traded to an all-time low of 80 the past week.

However, the Shanghai-based electric car manufacturer’s ADSs caught a bid on Monday, which may have been in anticipation of positive earnings from Tesla Inc., which would be a positive for the electric vehicle industry as a whole, a source said.

Tesla beat expectations with earnings per share of 93 cents versus analyst expectations for earnings per share of 79 cents and revenue of $10.39 billion versus expectations for revenue of $10.29 billion.

However, Tesla’s stock was down about 1.89% in the aftermarket following the results.

Mentioned in this article:

Nio Inc. NYSE: NIO

Proofpoint Inc. Nasdaq: PFPT

Snap Inc. NYSE: SNAP

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