New RH 0% convertible notes edge up; BEST, Heska also add; slowing primary pace eyed

By Rebecca Melvin

New York, Sept. 13 – Three deals that priced on Thursday for first-day trading on Friday were modestly higher on flat to lower shares.

RH’s new 0% convertibles were trading at about 100.25 bid, 101 offered with the stock little changed at $169.12, after the home furnishings retailer priced a $300 million deal with an initial conversion premium of 25%.

The paper had been talked at a 0% coupon and 25% to 30% initial conversion premium.

One market source looked slightly askance at the zero-yielding paper, saying that this bond is “no good for an income strategy until it busts.”

A busted convertible refers to a bond that trades below its conversion price and more like regular debt because it has very little chance of reaching its convertible price before maturity.

BEST Inc.’s 1.75% notes were seen trading at 102 with the stock lower in early trading after the China supply chain services provider priced $175 million of the five-year convertible notes with an initial conversion premium of 27.5%.

Pricing had come at the cheap end of 1.25% to 1.75% coupon talk, and beyond the cheap end of 30% to 35% premium talk.

Heska Corp.’s newly priced 3.75% convertibles were trading on good volume for a small deal of $75 million. By midday there were about $11 million of the seven-year convertible notes that changed hands, according to Trace data.

The notes were seen at 101 with the underlying shares lower. Shares turned higher in afternoon trading and were last up 38 cents, or 0.6% at $64.55.

Pricing had come at the cheap end of talk, which was for a coupon of 3.25% to 3.75% and an initial conversion premium of 35% to 40%.

The convertibles market saw a smattering of seven U.S. dollar-denominated deals price this past week, totaling $1.22 billion in new paper, according to Prospect News’ data.

The volume was lower than the previous week’s approximately $4 billion in issuance – which was unusually robust – but it turned out to be a decent amount of paper if feeling a bit like “mopping up” ahead of the Federal Reserve’s open market policy meeting set for next week and the beginning of a number of companies’ blackout periods ahead of earnings reports.

Some of the recent new issues continue to trade weakly. But Okta Inc.’s 0.125% notes due 2025, of which $1 billion priced on Sept. 4, held in on Friday. It changed hands at 93.75, which was down 0.36 point, while shares traded down 4% to $102.09 on Friday.

Earlier in the week, the Okta notes were quoted at 93.75 bid 94.25 offered with the stock around $109.11.

New RH 0% edges up

The new RH 0% convertibles were trading early Friday at 100.25 bid, 101 offered with the stock little changed at $169.12. according to a New York-based market source.

The notes, which came with a 25% premium, had been talked at a 0% coupon and 25% to 30% initial conversion premium on Thursday.

RH is formerly Restoration Hardware, and it has existing convertible debt that came at similar pricing. The RH 0% convertible bonds due 2023 bounced around in early trade but were last little changed at 108.125, according to Trace data. The bonds had also printed with a 106 handle on Friday.

The proceeds of the new convertible will be used to retire the Corte Madera, Calif.-based home furnishings company’s $200 million outstanding second-lien debt and reduce borrowings under its credit facility.

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