Redfin’s new convertible notes expand on debut; CalAmp drops below par; Chart jumps

By Abigail W. Adams

Portland, Me., July 19 – Thursday opened with another new convertibles 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%.

The new paper dominated secondary market activity and expanded on debut, sources said.

While the secondary market zeroed in on Redfin, the deals to hit the market on Wednesday drifted out of focus.

CalAmp Corp.’s 2% convertible notes due 2025 dropped below par on Thursday. While the notes were still expanded dollar-neutral, they did not appear to be trading against stock, a market source said.

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.

Chart Industries Inc.’s 1% convertible notes due 2024 saw large gains on an outright and dollar-neutral basis as stock skyrocketed after the company reported second-quarter earnings prior to the market open, a market source said.

The company’s 2% convertible notes due Aug. 1, 2018 are in their averaging period.

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

Redfin dominates

Redfin’s newly priced 1.75% convertible notes due 2023 dominated secondary market activity on Thursday.

The Seattle-based real estate brokerage priced $125 million of five-year convertible notes after the market close on Wednesday.

Unlike the deals that hit the market on Wednesday, which all priced at the cheap end of talk, Redfin priced 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 expanding on its market debut. The new 1.75% notes were seen trading up to 102.5 with stock up about 2% soon after the opening bell.

They were expanded about 1.75 points on a dollar-neutral, or hedged, basis early in the session, 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 notes were seen trading at 103 versus a stock price of $24.95 later in the afternoon. The notes lost their early dollar-neutral expansion as stock rose in the afternoon but were still expanded about 0.25 point dollar-neutral, a 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 concurrent equity offering was done, in part, to help with the borrow on the stock, a source said.

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

CalAmp below par

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, trading of CalAmp’s 2% convertible notes due 2025 tempered on Thursday. The notes dropped below par with stock down.

They were seen at 99 bid, 99¾ offered in the mid-afternoon.

CalAmp’s stock was “back to its normal doldrums” on Thursday, a market source said.

After a flurry of activity on Wednesday, there were only about 187,000 shares traded by mid-afternoon Thursday, the source said.

While the notes were expanded about 0.5 point dollar-neutral, it was only if the bonds were being traded against stock, which did not appear to be the case in the mid-afternoon, the source said.

CalAmp stock closed Thursday at $23.22, a decrease of 0.39%.

Encore improves

Encore Capital’s 4.5% exchangeable notes due 2023 were also slow to trade on Thursday. However, the notes continued to make gains on an outright basis.

The notes were seen trading up to 102.875 in the late afternoon. Encore stock closed Thursday at $36.70, an increase of 0.96%.

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.

Encore “keeps coming back” to the convertibles market, another source said. The debt management and recovery solutions company has a good business model and a good story, the source said.

Everyone was convinced the company would go bankrupt in 2008 when the company’s stock was $3.00.

However, the financial crisis worked in Encore’s favor and allowed them to buy debt for pennies on the dollar and gave debtors the ability to clean it up at a discount, the source said.

The new deal carries the highest coupon out of Encore’s outstanding convertible notes, an indication of rising interest rates.

Companies are being encouraged to issue convertible debt now before rates go any higher. “It really is a very good time for bankers in convert land,” the source said.

Chart jumps

Chart Industries’ 1% convertible notes due 2024 made large gains on an outright and dollar-neutral basis on Thursday after the company reported second-quarter earnings prior to the market open.

The 1% convertible notes jumped more than 11 points outright and were up about 1 point dollar-neutral as stock jumped more than 14%.

The notes were seen at 142.5 bid, 143.25 offered versus a stock price of $77.50, a market source said.

Chart’s 2% convertible notes are currently in their averaging period and will mature on Aug. 1.

They were quoted up 12 points to 112 at market close Thursday, according to a market source.

However, they continued to trade below par and will most likely be put back to the company as opposed to converted into stock, a source said.

Chart stock closed Thursday at $77.66, an increase of 14.21%.

Chart reported non-GAAP earnings of 55 cents per share for the second quarter, which beat analyst expectations of 45 cents per share.

Mentioned in this article:

CalAmp Corp. Nasdaq: CAMP

Chart Industries Inc. Nasdaq: GTLS

Encore Capital Group Inc. Nasdaq: ECPG

Redfin Corp. Nasdaq: RDFN

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