Morning Commentary: Nio convertibles hit the market, trade ‘ugly’; ServiceNow active

By Abigail W. Adams

Portland, Me., Jan. 31 – The first new convertible notes of the week hit the secondary space on Thursday and tanked on their market debut.

Nio Inc. priced $650 million of five-year convertible notes after the market close on Wednesday in line with revised price talk with a coupon of 4.5% and an initial conversion premium of 27.5%.

Price talk was widened to 4.5% with an initial conversion premium of 27.5% during bookbuilding from the initial talk of a coupon of 3.5% to 4% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The new notes traded down out of the gate, despite a surge in Nio’s stock.

The notes were changing hands around 99 soon after the opening bell and traded down to 97 a little over one hour into Thursday’s session, according to a market source.

However, Nio stock was making gains on Thursday with the notes trading up to $7.85, an increase of 5.22%, shortly before 11 a.m. ET.

“It’s really unusual for something to trade so ugly with stock up,” a market source said.

The fact price talk was widened and not downsized was also rare.

The deal was heard to be one of the most complicated deals long-time market players had ever been privy to, a market source said.

In connection with the pricing, Nio entered into capped call transactions and zero-strike call option transactions.

The zero-strike call options were essentially a borrow facility.

There were several unusual aspects to the deal, which had a lot of hair on it and contributed to its lackluster performance in the secondary space, a source said.

Meanwhile, ServiceNow Inc.’s 0% convertible notes due 2022 saw high-volume activity with the notes making large outright gains alongside stock following its fourth-quarter earnings report.

The 0% convertible notes rose 20 points outright to trade at 170 in high-volume activity. ServiceNow stock jumped to $226.39, an increase of 16.69%, shortly before 11 a.m. ET.

ServiceNow reported non-GAAP earnings per share of 77 cents versus analyst expectations of earnings per share of 64 cents.

However, revenue was $715.4 million, which missed analyst expectations of $717.8 million.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.