Freshpet convertible notes skyrocket on debut; Esperion, LivePerson tank on hedge

By Abigail W. Adams

Portland, Me., March 16 – The convertibles secondary space was a place of outsized moves on Thursday as markets recovered from a choppy start to the session.

New paper from Freshpet Inc. soared on an outright and dollar-neutral basis while topical news sparked double digit contractions in outstanding issues.

Markets were mixed early in the session as investors digested Credit Suisse’s bailout from the Swiss National Bank, headlines that First Republic Bank was exploring a sale and a European Central Bank that raised interest rates by 50 basis points despite the recent disruption in financial markets.

However, headlines that big banks were discussing a rescue of First Republic Bank reignited the market’s risk-on sentiment.

“Things started to catch a bid,” a source said.

The Dow Jones industrial average closed up 372 points, or 1.17%, the S&P 500 index closed up 1.76%, the Nasdaq Composite index closed up 2.48% and the Russell 2000 index closed up 1.45%.

There was $483 million on the tape about one hour before the market close with Freshpet’s new 3% convertible notes due 2028 dominating activity.

LivePerson Inc.’s 0% convertible notes due 2026 were active with the notes plunging dollar-neutral as stock got slashed in half following earnings.

While volume in the name was light, Esperion Therapeutics Inc.’s 4% convertible notes due 2025 cratered double digits as investors questioned the company’s future viability.

Freshpet soars

Freshpet priced $350 million of five-year convertible notes after the market close on Wednesday at par at the cheap end of talk with a coupon of 3% and an initial conversion premium of 27.5%.

Price talk was for a coupon of 2.5% to 3% and an initial conversion premium of 27.5% to 32.5%.

The deal sparked ire from shareholder JANA Partners, which issued a statement in opposition to the capital raise on Wednesday.

However, several sources found the offering attractive and it closed multiple times oversubscribed with the majority of allocations to outright accounts.

The 3% convertible notes traded up to 101.75 out of the gate and continued to rise as the session progressed.

They were marked at 102 bid, 102.5 offered with stock in negative territory early in the session.

However, volume was muted in early trade with $11 million on the tape about one hour into the session.

The deal was mostly allocated to outright accounts, which tend to hold them long-term, a source said.

However, trading activity in the name picked up as the notes continued their meteoric climb.

The convertibles were changing hands at 106 versus a stock price of $58 in the late afternoon.

The notes expanded about 3 points dollar-neutral, a source said.

While the notes were mostly placed with outright accounts during bookbuilding, they switched into hedge hands in the aftermarket with the notes actively traded on swap, a source said.

Outright accounts were cashing in as the notes soared.

There was $98 million in reported volume.

Freshpet’s stock traded to a high of $59.38 and a low of $52.72 before closing at $58.27, an increase of 6.62%.

LivePerson sinks

LivePerson’s 0% convertible notes due 2026 plunged in heavy volume on Thursday as stock “got walloped” following earnings, a source said.

The 0% convertible notes sank 13 points outright with stock down more than 55%.

They were trading at 61.5 versus a stock price of $4.45 in the late afternoon.

The notes sank 7 points dollar-neutral.

“People had big positions in these,” a source said.

While volume was light, LivePerson’s short-duration 0.75% convertible notes due March 1, 2024 were holding up comparatively well.

The notes were off about 4 points outright to trade at 90.5.

The yield was about 11.625%.

LivePerson’s stock traded to a low of $4.02 and a high of $5.02 before closing at $4.13, a decrease of 57.73%.

Stock was slashed in half after a large earnings miss that was attributed to suspended Medicare payments to subsidiary WildHealth and executive bonuses that were paid in cash as opposed to shares.

LivePerson reported a loss of 55 cents a share on revenue of $122.5 million versus analyst expectations for earnings per share of 12 cents on revenue of $127 million.

Esperion craters

While volume was light, Esperion’s 4% convertible notes due 2025 cratered double digits both outright and on hedge as investors questioned the company’s ability to continue.

The notes were marked at 35 bid, 45 offered in the late afternoon.

They contracted at least 12 points dollar-neutral, a source said.

The notes were trading on a 61-handle earlier in the week.

Esperion’s stock traded to a low of $1.26 and a high of $2.16 before closing at $1.82, a decrease of 54.27%.

Esperion’s shares were slashed in half after the biotech company disclosed that there was a dispute regarding a $300 million milestone payment from its joint venture partner Daiichi Sankyo Group.

The dispute has raised concern about their ability to continue.

“They’re running out of cash,” a source said.

Mentioned in this article:

Esperion Therapeutics Inc. Nasdaq: ESPR

LivePerson Inc. Nasdaq: LPSN

Freshpet Inc. Nasdaq: FRPT

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