iQIYI’s $1.05 billion convertible notes expand on debut; Exact Sciences trades below par

By Abigail W. Adams

Portland, Me., March 27 – iQIYI Inc. was the name of the day in the convertibles space on Wednesday as $1.05 billion in new paper from the Beijing-based online entertainment service provider hit the secondary market.

The new paper dominated trading activity and saw a large dollar-neutral expansion out of the gate.

The company’s existing 3.75% convertible notes due 2023 also remained active with the notes improving after a large dollar-neutral contraction during Tuesday’s session.

While iQIYI’s convertible notes accounted for the lion’s share of trading volume, Chegg Inc.’s recently priced 0.125% convertible notes due 2025 continued to see activity.

After gaining ground during Tuesday’s session, the notes again dropped on Wednesday.

Trading volume was light for Exact Sciences Corp.’s 0.375% convertible notes due 2027 as the company’s stock tanked.

However, the notes dropped below par for the first time since hitting the market in early March.

iQIYI in focus

iQIYI’s convertible notes were the focus of the convertibles space on Wednesday, accounting for the lion’s share of trading activity.

iQIYI priced $1.05 billion of six-year convertible notes after the market close on Tuesday at par with a coupon of 2% and an initial conversion premium of 32.5%.

Pricing came at the rich end of talk for a coupon of 2% to 2.5% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The new paper dominated activity in the secondary space and saw a large expansion out of the gate.

The notes were largely wrapped around 102 with the company’s American Depositary Shares flat early in the session. They dropped down to 100.75 as stock dropped off into the afternoon.

The notes were expanded 2 points dollar-neutral, sources said.

By the mid-afternoon, more than $215 million of the bonds were on the tape.

The majority of trades were done on swap, a market source said.

While iQIYI’s new 2% convertible notes due 2025 dominated activity in the secondary space, the outstanding 3.75% convertible notes due 2023 continued to see active trading.

The 3.75% convertible notes were slightly improved on Wednesday after a 2- to 3-point contraction on Tuesday.

They were changing hands at 117 early in the session and dropped down to 115.875 by the mid-afternoon.

The notes were better by about 0.25 to 0.5 point dollar-neutral, sources said.

“The damage was done yesterday,” a source said.

iQIYI’s ADSs closed Wednesday at $22.71, a decrease of 0.7%.

The ability of iQIYI to tap the market less than six months after pricing the 3.75% convertible notes and price its new offering 175 bps cheaper than its outstanding notes was impressive, a market source said.

The company is in an industry that investors want to be a part of.

The pricing is also an indication of the good tone to the market, the source said.

Chegg down again

Chegg’s 0.125% convertible notes due 2025 were again on the decline after showing signs of a rebound on Tuesday.

The notes again dropped to the 97 level during Wednesday’s session.

While down outright, the notes were unchanged dollar-neutral, a market source said.

The 0.125% notes have largely traded at 97 since hitting the secondary space on March 22.

However, they rebounded on Tuesday, trading up to 99.5.

Chegg stock was again off on Wednesday, trading as low as $36.19 before closing the day at $37.04, a decrease of 3.32%.

Exact Sciences below par

While volume was light, Exact Sciences’ 0.375% convertible notes due 2027 dropped below par for the first time since hitting the secondary space in early March.

The 0.375% convertible notes were quoted at 98.5 bid, 99.25 offered on Wednesday with stock down 10%.

Exact Sciences stock dropped to $81.12, a decrease of 10.82%, on Wednesday.

The molecular diagnostics company, which is focused on the early detection of colorectal cancer, saw its stock tank following news that a competitor had bought a company developing a cancer screening test.

Guardant Health announced plans to acquire Bellwether Bio, which is developing cancer screening tests, prior the market open.

Both Guardant and Exact Sciences are developing cancer screening tests using blood samples.

Wednesday was not only the first time the 0.375% notes traded below par since hitting the secondary space, it was also the first time the notes were quoted below their issue price.

Exact Sciences priced $747.5 million of the 0.375% convertible notes at 99.5 in early March.

The notes shot up in secondary trading and were north of 104.5 on Tuesday.

Mentioned in this article:

Chegg Inc. NYSE: CHGG

Exact Sciences Corp. Nasdaq: EXAS

iQIYI Inc. Nasdaq: IQ

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