iQIYI on tap; Avaya’s 2.25% convertibles expand; Chegg improves; Tesla under pressure

By Abigail W. Adams

Portland, Me., March 25 – The primary market launched the week with a large deal, despite a volatile day for equities.

iQIYI Inc. plans to price $1.05 billion of six-year convertible notes after the market close on Tuesday with a coupon of 2% to 2.5% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

Goldman Sachs & Co. LLC, BofA Merrill Lynch and J.P. Morgan Securities LLC are the bookrunners for the Rule 144A and Regulation S offering, which carries a greenshoe of $150 million.

The offering is the second from iQIYI in less than six months. iQIYI priced a $750 million issue of 3.75% convertible notes due 2023 in November 2018.

Meanwhile, the convertible secondary market was quiet on Monday as equities wavered between gains and losses.

The Dow Jones industrial average opened the day down more than 100 points, was up by 14 points shortly before 11 a.m. ET, dropped back into the red as the session progressed but closed the day up by 14 points.

The Nasdaq closed the day down 0.07%, and the S&P 500 index closed the day down 0.08%.

With equities volatile, most people remained on the sidelines trying to determine which direction the market would turn.

However, Avaya Holdings Corp.’s 2.25% convertible notes due 2023 were in focus and made large gains on both an outright and dollar-neutral basis as stock soared on Monday.

Chegg Inc.’s newly priced 0.125% convertible notes due 2025 were slightly improved on Monday after a brutal market debut.

Tesla Inc.’s convertibles saw some activity as stock again traded down following an analyst downgrade.

The market is now debating the electric car manufacturer’s ability to pay off its upcoming debt, including SolarCity Corp.’s 1.625% convertible notes due Nov. 1, 2019.

Avaya in focus

Avaya Holdings’ 2.25% convertible notes due 2023 were in focus on Monday with the notes jumping on both an outright and hedged basis as stock soared.

The 2.25% convertible notes rose about 14 points outright.

They traded as high as 94.75 during Monday’s session after previously trading in the 80 range, sources said.

The notes were expanded about 1 to 2 points dollar-neutral based on the delta used, a source said. Another source saw the notes expanded 1.5 points dollar-neutral.

“It’s a winner for both outrights and hedgers today,” the source said.

The majority of holders of the 2.25% notes are outright accounts.

Avaya Holdings stock closed Monday at $17.51, an increase of 32.55%.

The telecommunications equipment and software vendor’s stock soared after news surfaced that the company was considering a leveraged buyout offer from an unidentified private equity firm.

The offer values the company at more than $5 billion, including debt, which is about $20.00 a share.

With the takeout offer, holders would exercise the change-of-control put if the deal comes to fruition, a market source said.

The conversion price on the 2.25% notes is $27.76.

Chegg improves slightly

Chegg’s newly priced 0.125% convertible notes due 2025 were slightly improved on Monday after a brutal market debut on Friday.

The notes were unchanged from Friday’s close and continued to hover around 97 early in the session.

However, they gained about 1 point outright and were changing hands around 98 in the afternoon.

The notes were up about 0.125 point dollar-neutral, a market source said.

More than $16 million of the bonds were on the tape by the late afternoon.

Chegg stock was volatile alongside the broader markets on Monday.

Stock traded as low as $36.07 during Monday’s session but closed the day at $37.29, an increase of 1.44%.

The 0.125% notes, which priced at par, took a hit on their market debut on Friday.

While the notes maintained an expansion of about 0.5 point on swap, the notes traded down to 97 on an outright basis.

Outright accounts were feeling the pain as stock tanked on Friday after the release of a short-seller report.

Andrew Left’s Citron Research alleged the company facilitated academic cheating and set a $25 price target on the stock.

Tesla under pressure

Tesla’s convertible notes were active on Monday as stock continued its downward momentum.

Tesla’s 1.25% convertible notes due 2021 dropped below par on Monday.

The notes traded down to 99.

However, in a few months, the notes will become a lot more interesting as their maturity approaches, a source said.

SolarCity’s soon-to-mature 1.625% convertible notes due Nov. 1, 2019 were changing hands at 95.5 in the mid-afternoon, a market source said.

The 1.625% notes have $566 million outstanding, according to Trace data.

The question now is whether the market believes Tesla will be able to cover the upcoming maturities on its notes, a market source said.

A growing portion of the market is showing doubt, the source said. However, Tesla is a $44 billion market cap company.

Tesla stock traded to a high of $263.18 and a low of $254.46 before closing Monday at $260.42, a decrease of 1.55%.

Stock was again trading down on Monday, this time due to a downgrade from an RBC Capital Markets analyst.

The analyst cut the price target on Tesla stock to $210 from $245 and cuts its forecast for Model 3 deliveries to 52.500 from 57,000, CNBC reported.

Mentioned in this article:

Avaya Holdings Corp. NYSE: AVYA

Chegg Inc. NYSE: CHGG

iQIYI Inc. Nasdaq: IQ

Tesla Inc. Nasdaq: TSLA

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