Morning Commentary: NIO’s new convertible notes hit the aftermarket, expand on debut

By Abigail W. Adams

Portland, Me., Sept. 20 – The convertibles secondary space saw an active start to the day with markets staring down the Federal Open Market Committee’s 2 p.m. ET announcement and $1 billion in new supply making its aftermarket debt.

NIO Inc. priced a $1 billion two-tranche offering of six- and seven-year convertible notes after the market close on Tuesday.

The new paper dominated activity in the secondary space with both tranches strong on an outright and dollar-neutral basis as NIO’s equity recuperated from a 15% drop the previous session.

The broader convertible space was quiet ahead of the Fed’s decision with equity indexes mixed and Treasuries largely flat.

The Dow Jones industrial average was up 170 points, or 0.49%, the S&P 500 index was up 0.25%, the Nasdaq Composite index was down 0.02% and the Russell 2000 index was up 0.63% shortly before 11 a.m. ET.

NIO in focus

NIO priced a $1 billion two-tranche offering of six- and seven-year convertible notes after the market close on Tuesday.

The deal consisted of a $500 million tranche of six-year convertible notes, which priced at par with a coupon of 3.875% and an initial conversion premium of 30%.

Pricing came toward the cheap end of talk for a coupon of 3.5% to 4% and at the midpoint of talk for an initial conversion premium of 27.5% to 32.5%.

The deal also included a $500 million tranche of seven-year convertible notes, which priced at par with a coupon of 4.625% and an initial conversion premium of 30%.

Pricing came toward the cheap end of talk for a coupon of 4.25% to 4.75% and at the midpoint of talk for an initial conversion premium of 27.5% to 32.5%.

The offering was among the cheapest to clear the primary market recently with the tranches modeled 7 to 9 points cheap at the midpoint of talk, sources said.

While the offering “had a lot of hair on it,” a source said, it played to strong demand especially from hedge funds.

Allocations to hedge funds were about 75% of the offering, a source said.

The notes were putting in a strong performance in the aftermarket.

The 3.875% convertible notes due 2029 traded up to 103.5 early in the session.

The 4.625% convertible notes due 2030 rose to 104.

Both tranches saw a 1 point to 1.5 point expansion, a source said.

NIO’s American Depositary Shares traded up to $8.95, and increase of 4.68%, shortly before 11 a.m. ET.

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