Morning Commentary: Redfin’s new convertible notes hit the market, expand on debut

By Abigail W. Adams

Portland, Me., July 19 – Thursday opened with another new deal hitting the secondary space. Redfin Corp. priced $125 million of five-year convertible notes after the market close on Wednesday with a coupon of 1.75% and an initial conversion premium of 30%.

Pricing came at the rich end of talk for a coupon of 1.75% to 2.25% and at the midpoint of talk for an initial conversion premium of 27.5% to 32.5%, according to a market source.

The new paper was the most actively traded in the secondary space and was expanding on its market debut. The new 1.75% notes were seen trading up to 102.5 with stock up about 2%. They were expanded about 1.75 points on a dollar-neutral, or hedged, basis, a market source said.

The notes were trading up right out of the gate on the expectation the stock would do well, the source said.

The convertible notes priced concurrently with an equity offering of 4,205,510 shares, which priced at $23.50 per share.

While Redfin has a large market cap, the stock does not have a good float, the source said. The name is heavily shorted, making the borrow on the stock tight.

The deal “was good financing” for the company and was an opportunity to raise money cheaply, a market source said.

While Redfin’s new convertible notes were in focus in the secondary space, the deals to hit the market on Wednesday were slow to trade.

After dominating activity in the space on Wednesday with $47 million bonds changing hands, CalAmp Corp.’s 2% convertible notes due 2025 were not seen on the tape early Thursday. The notes were last seen hovering at par on Wednesday and were expanded about 0.25 point dollar-neutral.

Encore Capital Europe Finance Ltd.’s 4.5% exchangeable notes due 2023 tied to Encore Capital Group Inc. were also slow to trade on Thursday. However, the notes continued to make gains on an outright basis and were seen trading up to 102.625 with stock unchanged at $36.35.

The deal was heavily oversubscribed during the subscription process and was allocated to a mix of long only and hedge players, a market source said. A serial issuer of convertible notes, the new deal from Encore attracted both existing and new accounts, the source said.

While no new deals are expected to launch after the market close, there are whispers of new deals in the pipeline for next week, a source said.

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