Tabula Rasa’s convertible offering eyed; FireEye, Twitter notes expand; Nio contracts

By Abigail W. Adams

Portland, Me., Feb. 7 – Despite an ugly day for equities, the second overnight convertibles offering of the week is set to price after the market close on Thursday.

Tabula Rasa Healthcare Inc. is on deck with a $250 million offering of seven-year convertible notes.

The deal modeled cheap and was heard to be well received during bookbuilding, sources said.

Meanwhile, the secondary space was active with about $93 million on the tape early in the session and $418 million on the tape in the late afternoon.

Earnings related stock moves jumpstarted trading activity.

With the upcoming week earnings heavy, many accounts were also setting up their trades in anticipation of big stock moves next week, a market source said.

FireEye Inc.’s convertible notes were down outright but improved on a dollar-neutral basis as stock sank following its fourth-quarter earnings report.

Twitter Inc.’s 0.25% convertible notes due 2024 were similarly down outright but improved dollar-neutral as stock took a hit following its earnings.

Nio Inc.’s 4.5% convertible notes due 2024 “collapsed” on Thursday with the notes again sinking below par and seeing a large dollar-neutral contraction, according to a market source.

Tabula Rasa eyed

Tabula Rasa plans to price $250 million of seven-year convertible notes after the market close on Thursday with price talk for a coupon of 1.75% to 2.25% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The deal is being marketed with a credit spread of 500 basis points over Libor and a 40% vol., according to a market source.

Using those assumptions, the deal models about 3.25 points cheap at the midpoint of talk, one source said.

With a more conservative credit spread of 600 bps over Libor and a 40% vol., the deal models about 0.79 point cheap, another source said.

While some sources opted for a more conservative credit spread, others said they felt underwriters were being conservative.

With a tightened credit spread and wider vol., the deal looked even more attractive, a market source said.

The deal was heard to be well received during bookbuilding and is expected to perform well in the secondary space.

The seven-year duration of the notes is a drawback, a source said.

However, Tabula Rasa Healthcare is a tech company that serves the health care sector. The company has a solid balance sheet, a source said.

While the company has good growth potential, another source felt the investment was risky given the size of the capital raise for a company with a $1 billion market cap.

While the company has some term loans which it plans to repay via proceeds from the convertible notes offering, Tabula Rasa is a new company to the convertibles universe.

Sources noted the deal was the first in a long time to be senior subordinated.

The majority of convertible notes are senior unsecured, a source said.

The distinction leaves open the possibility the company will issue additional debt that will come before the convertible notes in the capital structure, a source said.

FireEye expands

FireEye’s convertible notes were sinking on an outright basis but posting gains dollar-neutral as stock tanked following its fourth-quarter earnings report.

FireEye’s 0.875% convertible notes due 2024 were the most active of the tranches.

They dropped about 6 points outright to trade at 100.75. More than $6 million of the bonds were on the tape by the late afternoon.

FireEye’s 1.625% convertible notes due 2035 were not active on Thursday. However, the notes were quoted down about 4.5 points to 88.125.

The 1% convertible notes due 2035 were seen at 96.5.

The notes were improved about 0.25 point dollar-neutral, a market source said.

FireEye stock traded down to close Thursday at $16.19, a decrease of 12.11%.

While FireEye beat on both the top and bottom lines, shares were trading down based on weak guidance.

FireEye reported non-GAAP earnings per share of 6 cents versus analyst expectations for earnings per share of 5 cents.

Revenue was $217.5 million in the fourth-quarter versus analyst expectations for revenue of $216.8 million.

However, FireEye’s guidance missed analyst expectations.

FireEye expects a non-GAAP loss per share of 2 cents to 4 cents on revenue of $208 million to $212 million for the first quarter.

Analysts expected non-GAAP earnings per share of 1 cent on revenue of $211.7 million.

Twitter’s earnings

Twitter’s 0.25% convertible notes due 2024 were among the most actively traded issues in the secondary space.

The notes were also trading down on an outright basis but posting gains dollar-neutral.

The notes dropped almost 4 points outright. They were seen changing hands around 90.79 versus an equity price of $30.93.

The 0.25% notes were improved about 0.25 point dollar-neutral.

Twitter stock closed Thursday at $30.8, a decrease of 9.84%.

While Twitter also beat on the top and bottom line in its fourth-quarter earnings report, shares were taking a hit on weak guidance.

Twitter reported non-GAAP earnings per share of 31 cents versus analyst expectations for earnings per share of 25 cents.

Revenue was $909 million versus analyst expectations for revenue of $868 million.

However, Twitter projected revenue of $715 million to $775 million for the first-quarter, the midpoint of which missed analyst expectations for revenue of $765 million.

Twitter also announced expenses would rise as much as 20% in 2019, according to Investor’s Business Daily.

NIO tanks

NIO’s 4.5% convertible notes due 2024 once again dropped below par and saw a large contraction dollar-neutral during Thursday’s session.

The bonds “collapsed,” a market source said. They were down 4 points outright to 99.5 and contracted about 1.5 points dollar-neutral.

Nio stock closed Thursday at $8.04, a decrease of 4.29%.

The notes have largely struggled since hitting the secondary space on Jan. 31. However, they trade on two tiers, according to a market source.

For those that participated in the borrow facility established when the notes priced, they have performed well. However, without the borrow facility, the notes have been contracted since hitting the secondary space.

Mentioned in this article:

FireEye Inc. Nasdaq: FEYE

Nio Inc. NYSE: NIO

Tabula Rasa Healthcare Inc. Nasdaq: TRHC

Twitter Inc. NYSE: TWTR

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