CyberArk outperforms among new issues; Sea, Halozyme also rise outright and on swap

By Rebecca Melvin

New York, Nov. 14 – U.S. convertibles had a big dose of new issuance hit the space on Thursday, with $1.9 billion of bonds in three deals. But all of the paper was well-received and traded up outright and on swap.

There were some concerns that there would be too much new issuance for investors to digest, but maybe for that reason the underwriters didn’t push pricing too far, and the deals were well-liked and all did fine, a New York-based portfolio manager said. “They seemed to leave some meat on the bones.”

CyberArk Software Ltd. was Thursday’s outperformer on a swap basis, with the 0% notes moving up 1.375 points outright and up 1.5 points on a swap basis at the midpoint of the range.

Sea Ltd.’s 1% convertibles were the next best performer, moving up 3 points on an outright basis and up 1.125 points on a dollar-neutral basis, the portfolio manager said.

Meanwhile, Halozyme Therapeutics Inc.’s 1.25% notes moved up 1.75 points on an outright basis but expanded only about 0.125 point on a swap basis. Halozyme shares jumped 82 cents, or 4.6%, to $18.49.

Elsewhere in the market NXP Semiconductors NV’s convertible bond that is maturing Dec. 1, 2019 was actively traded, coming in third in terms of volume among technology names, behind the new CyberArk and Halozyme issues.

NXP’s 1% notes traded between 112 and 113, following the underlying shares as activity ahead of its maturity persists.

“NXPI is at the end of life,” and the actively is related to that, a market source said.

Meanwhile Intelsat SA’s convertibles dropped in active trade in tandem with a plunge in the underlying shares The Intelsat 4.5% convertible notes due 2025 dropped 7.5 points to 104 on Thursday. The shares of the Luxembourg-based communications satellite services company dropped another $2.30, or 16%, to $12.13, after a 25% plunge on Tuesday. The stock has lost about 60% this week as worries mount about the timing of C-Band monetization.

Delays on the availability of spectrum coming to market will impact both carriers and tower operators. But it will affect them differently. For DISH Network Corp. it may be positive, for example, by increasing the value of its own spectrum holdings. That’s a developing, fundamental story, a market source said, regarding the moves in Intelsat.

But for much of the overall market – the “on the run” names – on Thursday, pricing was unchanged.

CyberArk outperforms

The CyberArk 0% notes due 2024 moved up to 101.375 on an outright basis on Thursday. The notes were seen up 1.5 points on a dollar-neutral basis however with the underlying shares of the computer and information security company closing down 38 cents, or 0.33%, to $114.19.

They had traded up initially to $115.00, and the bonds made it up to 101.7 plus.

The Petah Tikva, Israel-based company, with its U.S. headquarters in Newton, Mass., priced $500 million of the five-year notes with an initial conversion premium of 37.5%.

Pricing came and at the rich end of 32.5% to 37.5% talk for the premium.

Morgan Stanley & Co. LLC and Goldman Sachs were bookrunners of the Rule 144A deal, which has a $75 million greenshoe.

The notes are non-callable for three years and then provisionally callable if shares exceed 130% of the conversion price.

In connection with the pricing of the notes, CyberArk entered into privately negotiated capped call transactions with one or more of the initial purchasers of the notes. The cap price on the transactions is $229.14, which represents a premium from the issuer’s perspective of 100%.

The proceeds of the notes will be used for working capital and other general corporate purposes and to pay the cost of the capped call transactions.

Sea adds outright

Sea’s 1% convertibles due 2024 traded up the most on an outright basis amid a move up the underlying shares. The bonds were seen up at 103 with the underlying shares climbing $1.74, or 4.95%, to $36.92.

“It was up 3 points outright, but it was up on swap about 1.125 points,” the portfolio manager said.

Sea priced $1 billion of the five-year paper at the middle of 0.75% to 1.25% coupon talk and at the midpoint of 40% to 45% talk for the premium.

The Rule 144A and Regulation S deal has a $150 million greenshoe.

An entity affiliated with one of the company’s directors is expected to purchase up to $100 million principal amount of the notes, according to the release.

The notes are non-callable until Dec. 1, 2022 and then are provisionally callable if shares exceed 130% of the conversion price. There is also a cleanup call if less than $75 million of the notes remaining outstanding, and they are callable in the event of tax law changes.

In connection with the pricing of the notes, Sea entered into capped call transactions with the initial purchasers of the notes or their affiliates. The cap price on the transactions will initially be $70.36 per share, which boosts the initial conversion premium from the issuer’s perspective to 100%.

Proceeds will be used to pay the cost of the capped call transactions and for business expansion and other general corporate purposes, including potential strategic investments and acquisitions.

Sea is a Singapore-based digital entertainment, e-commerce and digital financial services company.

Halozyme ekes out gains

The Holozyme 1.25% convertibles due 2024 were seen up at 101.75 with the underlying shares up 4.6% at $18.49.

The notes expanded on swap by 0.125 point.

The San Diego-based biotechnology company priced $400 million of the five-year notes at par to yield 1.25% with an initial conversion premium of 35%, according to a syndicate source on Thursday.

Pricing of the notes came at the midpoint of talk for a 1% to 1.5% coupon and at the cheap end of 35% to 40% premium talk.

The company develops products for diabetes, cancer, dermatology and drug delivery markets.

They are non-callable for three years and then provisionally callable at a price trigger of 130%. There are no puts. They have contingent conversion at a trigger of 130%.

The net-share settled notes have takeover protection via a make-whole adjustment premium delivered upon conversion as incremental shares; and there is full dividend protection via conversion ratio adjustment.

Up to $200 million of the proceeds from the notes will be used to repurchase shares of the company’s common stock concurrently with, or shortly after, the pricing of the notes. Remaining proceeds are earmarked for general corporate purposes, including share repurchases subsequent to the offering, working capital and about $26.1 million will be used for retiring debt under the company’s loan agreement with Oxford Finance and Silicon Valley Bank.

Mentioned in this article:

CyberArk Software Ltd. Nasdaq: CYBR

Halozyme Therapeutics Inc. Nasdaq: HALO

Intelsat SA NYSE: I

NXP Semiconductors SA Nasdaq: NXPI

Sea Ltd. NYSE: SE

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