Convertibles market eyes Canopy; Restoration, Sea, GCI Liberty, K2M hit the market

By Abigail W. Adams

Portland, Me., June 14 – The convertibles market is in the midst of another high-volume week of new deals with $1.29 billion in new paper hitting the secondary space on Thursday.

Restoration Hardware Inc. priced $300 million of seven-year convertible notes, GCI Liberty, Inc. priced an upsized $415 million of exchangeable senior debentures due 2046 tied to Charter Communications, Inc. stock and Sea Ltd. sold an upsized $500 million of five-year convertible notes after the market close on Wednesday.

K2M Group Holdings, Inc. priced $65 million of seven-year convertible notes prior to the market open on Thursday.

The deals had mixed performances out of the gate with some shooting “to the moon” and others contracting, market sources said.

While the market works to digest the new paper, the new deals are not yet done.

Canopy Growth Corp. plans to price C$400 million of five-year convertible notes after the market close on Thursday in a Rule 144A and Regulation S deal.

With the deal in Canadian currency, sources questioned how much of it would trade domestically.

TPG Specialty Lending, Inc. plans to price a $50 million add-on to its 4.5% convertible notes due 2022 prior to the market open on Friday with price talk for a reoffer price of 100.5 to 101, according to a market source.

J.P. Morgan Securities LLC and Goldman Sachs & Co. are joint bookrunners for the registered offering.

TPG is an investment-grade company, and the add-on is most likely the result of a reverse inquiry, a market source said.

RH contracts

Restoration Hardware priced $300 million seven-year convertible notes after the market close on Wednesday with a coupon of 0% and an initial conversion premium of 25%.

Pricing came in line with talk for a fixed coupon of 0% and at the cheap end of talk for an initial conversion premium of 25% to 30%, according to a market source.

The new paper was off to a lackluster start in the secondary market.

The new 0% notes were seen trading below their issue price and were contracted 0.25 point dollar neutral early in the session, a market source said.

While the notes made it up to 99.5, they were seen trading at 98.95 versus an equity price of $152.90 in the late afternoon, sources said.

They remained contracted about 0.25 point dollar neutral.

About $23 million of the bonds had traded by late afternoon.

With the recent explosion in Restoration Hardware stock, long only accounts were not buying the notes, a market source said.

Stock rose more than 30% on Tuesday after the company reported a first-quarter earnings beat.

Restoration Hardware stock closed Thursday at $154.39, a decrease of 0.34%.

Sea shoots ‘to the moon’

Sea priced an upsized $500 million of five-year convertible notes after the market close on Wednesday at the midpoint of talk with a coupon of 2.25% and an initial conversion premium of 32.5%.

Price talk had been for a coupon of 2% to 2.5% and an initial conversion premium of 30% to 35%, according to a market source.

The initial size of the deal had been $400 million. The greenshoe was also upsized to $75 million from $60 million.

The new 2.25% convertible notes shot “to the moon” right out of the gate, a market source said. They were seen trading at 103.25 bid, 104 offered with stock up to $15.15 early in the session.

The notes continued to climb alongside stock as Thursday’s session progressed and were seen trading up to 104.625 mid-afternoon.

The notes were seen trading at 104.5 versus an equity price of $15.40 shortly before the closing bell.

The notes expanded 3 points dollar neutral, a market source said. “They were 3-point winners,” the source said.

Sea’s new 2.25% convertible notes dominated trading activity in the secondary space with more than $135 million of the bonds traded by late afternoon.

GCI’s modest expansion

GCI Liberty priced an upsized $415 million of exchangeable senior debentures due 2046 tied to Charter Communications stock after the market close on Wednesday with a coupon of 1.75% and an initial exchange premium of 30%.

Pricing came toward the cheap end of talk for a coupon of 1.375% to 1.875% and at the cheap end of talk for an initial exchange premium of 30% to 35%, according to a market source.

The notes were seen trading between 100.5 and 101 early in the session and were flat to up 0.25 point dollar neutral, a market source said.

The notes were wrapped around 101 in active trading later in the afternoon. They were seen trading at 101 versus a stock price of $296.06 shortly before the closing bell.

Charter stock closed Thursday at $295.61, an increase of 3.72%.

K2M expands

K2M Group Holdings sold $65 million of seven-year convertible notes prior to the market open on Thursday with a coupon of 3% and an initial conversion premium of 22.5%.

Pricing came toward the cheap end of talk for a coupon of 2.625% to 3.125% and at the midpoint of talk for an initial conversion premium of 20% to 25%, according to a market source.

The deal looked to be a couple points cheap and was expected to do well, sources said. And it did.

The notes were seen trading up to 103 with stock down during Thursday’s session. They were expanded about 2 points dollar neutral, a market source said.

However, the 3% notes did not see much trading activity on Thursday.

K2M stock close the day at $21.83, a decrease of 5.62%.

Canopy eyed

Canopy Growth’s C$400 million offering of five-year convertible notes may be the first convertible notes offering from the medical and recreational marijuana sector involving American Depositary Shares, a market source said.

Price talk is for a coupon of 4.25% to 4.75% and an initial conversion premium of 20% to 25%, according to a market source.

While the deal is sizable, sources queried were not getting involved due to the Canadian currency and the complications involved in the exchanges.

Sources questioned how much trading would be done domestically and what the liquidity would look like.

While complicated, “it is a smoking industry,” a market source said. The company’s market cap of C$7.43 billion is huge, the source said.

Mentioned in this article:

Canopy Growth Corp. TSE: WEED, NYSE: CGC

Charter Communications, Inc. Nasdaq: CHTR

K2M Group Holdings, Inc. Nasdaq: KTWO

Restoration Hardware Inc. NYSE: RH

Sea Ltd. NYSE: SE

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