Redfin convertible offering eyed; Royal Caribbean trades down; Nova notes active

By Abigail W. Adams

Portland, Me., Oct. 15 – As volatility whipsawed equities, the convertibles primary market worked to churn out a new offering.

Redfin Corp. plans to price $525 million of five-year convertible notes after the market close on Thursday.

The deal played to heavy demand with talk tightening.

Meanwhile, trading volume was relatively light in the secondary space on a volatile day for equities.

While equities launched the day with large losses, they pared those losses as the session progressed and closed the day largely flat.

Royal Caribbean Cruises Ltd.’s newly priced 2.875% convertible notes due 2023 continued to struggle in the aftermarket with the notes now firmly below par.

Nova Measuring Instruments Ltd.’s 0% convertible notes due 2025 were also coming in slightly as stock continued to trade off.

Redfin eyed

Redfin plans to price $525 million of five-year convertible notes after the market close on Thursday.

The deal played to heavy demand with talk tightening during bookbuilding.

Talk was tightened to a fixed coupon of 0% and an initial conversion premium of 37.5% to 40%.

Initial talk was for a coupon of 0% to 0.5% and an initial conversion premium of 32.5% to 37.5%.

Underwriters were marketing the deal with assumptions of 400 basis points over Libor and a 40% vol.

Using those assumptions, the deal looked 2.14 points cheap at the midpoint of initial talk, a source said.

However, some sources were skeptical of the credit spread given the assumptions used when Redfin was marketing its debut convertible notes offering in 2018.

Underwriters used a credit spread of 350 bps over Libor and a 38% vol. when it was marketing the real estate technology platform’s 1.75% convertible notes due 2023, a source said.

While the credit spread was tighter in 2018, the pricing terms were much more attractive with the deal marketed with a coupon range of 1.75% to 2.25% and an initial conversion premium of 27.5% to 32.5%, according to the Prospect News database.

“It was a different market back then,” a source said.

The company has grown substantially since 2018 with the 1.75% notes priced against a stock price of $23.50.

Redfin’s stock closed Thursday at $51.79, a decrease of 6.97%.

While the company’s market cap has nearly doubled, the company is still cash flow negative, a source said.

Redfin is the latest deal to price with a 0% coupon, a trend which some sources think will backfire.

“That’s not going to end well,” a source said.

However, with the company taking out a portion of its 1.75% convertible notes with proceeds from the new offering, the deal played to healthy demand, which drove pricing of the notes tighter.

Redfin’s offering is the latest refinancing deal in the convertibles space.

Proceeds will be used to repurchase a portion of the company’s 1.75% convertible notes due 2023 in privately negotiated transactions.

There were several trades of the 1.75% convertible notes at 191.5 late Wednesday.

While one source thought the trades may have been the repurchase of the 1.75% notes, the repurchases are usually made simultaneously with the pricing, another source said.

Royal Caribbean cheapens

Royal Caribbean Cruises’ 2.875% convertible notes due 2023 continued to struggle its second day in the secondary space.

The 2.875% notes were seen changing hands at 99.25 with stock off more than 2% early in the session.

They traded down to a 98-handle as the afternoon progressed.

While some sources saw the notes as rich when they priced, they were now trading about 1 point cheap, a source said.

Royal Caribbean’s stock traded to a high of $59.55 and a low of $57.85 before closing the day at $59.38, a decrease of 0.88%.

Nova day two

Nova’s 0% convertible notes due 2025 were trading down on an outright basis as stock continued to drop their second day in the aftermarket.

The 0% notes were down 1 point outright with stock off more than 1%.

They stood poised to close the day at 102.25. However, the notes held onto their large dollar-neutral expansion.

Nova’s stock traded to a high of $58.06 and a low of $56.76 before closing the day at $57.32, a decrease of 1.8%.

The notes rose more than 3 points dollar-neutral on their secondary market debut on Wednesday.

Nova is one of several recent deals to price with a 0% coupon.

Mentioned in this article:

Nova Measuring Instruments Ltd. Nasdaq: NVMI

Redfin Corp. Nasdaq: RDFN

Royal Caribbean Cruises Ltd NYSE: RCL

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