Pluralsight on tap; Ares Capital wrapped around issue price; Exact Sciences expands

By Abigail W. Adams

Portland, Me., March 6 – Wednesday opened with $1 billion in new convertible paper hitting the secondary space and one more deal on deck for after the market close.

Pluralsight, Inc. plans to price an offering of five-year convertible notes concurrently with a common stock offering. The initial size of the deal was $450 million; however, it was heard to have upsized due to demand during bookbuilding.

Exact Sciences Corp. priced an upsized $650 million of eight-year convertible notes and Ares Capital Corp. priced $350 million of five-year convertible notes after the market close on Tuesday.

Both deals priced at a discount. While Exact Sciences’ new paper expanded on debut, Ares Capital was largely wrapped around its issue price.

Wednesday marked another down day for equities with the Dow Jones industrial average closing the day down 133 points, the Nasdaq 0.93% and the S&P 500 index 0.65%.

While the stocks of several convertible issuers were taking a hit, convertibles were largely trading in line, sources said.

Pluralsight on tap

After a two-day marketing period, Pluralsight’s offering of five-year convertible notes is set to price after the market close on Wednesday.

The deal was heard to be in demand during bookbuilding and will most likely come upsized, a market source said.

The convertible notes are believed to be pricing with a coupon of 0.375% and an initial conversion premium of 32.5%.

Price talk was for a coupon of 0.375% to 0.875% and an initial conversion premium of 30% to 35%. The initial size of the deal was $450 million.

The deal was heard to be in the market with a credit spread of 300 basis points over Libor and a 40% vol., a market source said.

Sources pegged the deal about 1.8 points cheap at the midpoint of talk.

While sources questioned the credit spread given the company’s IPO was in May 2018, the deal was sought after during the subscription process.

The convertible notes are pricing concurrently with an underwritten offering of 13,558,464 common shares from selling stockholders, which was the reason for the two-day marketing period, sources said.

Ares Capital dominates

While Pluralsight’s convertible notes offering was sought after during bookbuilding, Ares Capital’s most recent convertible notes experienced pushback.

Ares Capital priced $350 million 4.625% five-year convertible notes after the market close on Tuesday at 98 with an initial conversion premium of 15%.

The notes priced with a yield of 5.085%. The discount pushed the initial conversion premium of the notes down to 12.7%, a market source said.

Pricing came at the cheap end of revised price talk for a reoffer price of 98 to 98.5, a coupon of 4.625% and an initial conversion premium of 15%.

Initial price talk had the deal coming at par with a coupon of 4.125% to 4.625% and an initial conversion premium of 15% to 20%.

The new paper dominated activity in the secondary space. However, it was trading sloppy, a market source said.

The 4.625% notes traded to a low of 97.375 and a high of 98.75 but were mostly wrapped around their 98 issue price, a market source said.

While most trades were within that range, there were some odd lot trades outside of it, the source said.

Ares Capital stock closed Wednesday at $17.25, a decrease of 0.23%.

More than $72 million of the bonds were on the tape a little over one hour into Wednesday’s session and $95 million were on the tape by the late afternoon.

The pushback seen during bookbuilding was attributed to the sector and the longer duration of the notes.

While the convertible notes were rated investment grade, business development corporations are not the typical investment-grade company sought after by investors, a market source said.

There is also plenty of paper from BDCs in the market with Prospect Capital Corp.’s recent offering of 6.375% convertible notes.

“Do we need more BDC paper?” a market source said.

Investors have also shown a preference for the shorter dated maturities seen on some of the recent deals, the source said.

While the notes saw some pushback during bookbuilding and were off to a lackluster start in the secondary space, they are expected to improve once they switch out of weaker hands.

Ares Capital contracts

While Ares Capital’s 4.625% convertible notes dominated activity in the secondary space, the company’s 3.75% convertible notes due 2022 were also active.

The 3.75% notes continued to contract based off of the pricing of the new offering.

The notes traded down to 99.25 versus an equity price of $17.29.

They were contracted about 0.375 point dollar-neutral, a market source said.

The notes were also contracting on Tuesday and were down 0.25 to 0.5 point, sources said.

About $11.5 million of the bonds were on the tape by the late afternoon.

While new offering caused the notes to contract, “it’s nice to see it come in for sale,” a market source said.

Exact Sciences active

Exact Sciences priced an upsized $650 million of 0.375% eight-year convertible senior notes at 99.5 after the market close on Tuesday with an initial conversion premium of 27.5%.

Pricing came in line with price talk for a coupon of 0.375%, a reoffer price of 99.5 and an initial conversion premium of 27.5%, according to a market source.

The yield to maturity was 0.439%.

The deal was wall-crossed, a market source said.

The new paper was expanding on its market debut, sources said. The 0.375% notes were trading between 99.5 and par with stock down.

They were expanded about 1 point dollar-neutral, a market source said.

About $50 million of the bonds were on the tape by the late afternoon.

Proceeds from the new offering will be used to exchange $493.4 million of the outstanding 1% convertible notes due 2025 in cash and aggregate amount of 2.16 million shares of common stock in individually negotiated transactions.

The 1% convertible notes were also active on Wednesday.

The 1% notes were changing hands around 133.5 with more than $10 million on the tape by the late afternoon, sources said.

Exact Sciences stock closed Wednesday at $85.57, a decrease of 2.3%.

Mentioned in this article:

Ares Capital Corp. Nasdaq: ARCC

Exact Sciences Corp. Nasdaq: EXAS

Pluralsight, Inc. Nasdaq: PS

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