Morning Commentary: 2U convertible offering eyed; Booking Holdings in focus

By Abigail W. Adams

Portland, Me., April 20 – The convertible primary market launched what many are expecting to be another active week for new deal activity with an overnight offering.

2U, Inc. plans to price $300 million of five-year convertible notes after the market close on Monday with price talk for a coupon of 2% to 2.5% and an initial conversion premium of 25% to 30%.

The deal was being marketed with assumptions of 800 basis points over Libor and a 42% vol., according to a market source.

Using those assumptions, the deal modeled 4.33 points cheap at the midpoint of talk, a source said.

The convertible primary market has cranked out deals since the start of April with $6.82 billion pricing over 12 deals – almost 6x the amount that priced at this time in April 2019.

With companies in need of liquidity, the convertible primary market is expected to remain active, sources said.

“A lot of companies need to build up their balance sheets for the coming months,” a market source said.

And there is clearly money in the convertible space that is ready and willing to be put to work, another source said.

As market players eyed the new deal on deck, the convertibles secondary space was relatively quiet early Monday.

There was about $54 million in reported volume early in Monday’s session.

Equity markets opened Monday in the red as the barrel price of WTI crude oil for May delivery cratered 41% to under $11 a barrel in early trading.

However, equity indexes pared their losses as the session progressed.

While crude oil futures were dragging down markets, the exposure of the convertible universe to oil and gas is limited.

The few convertible issues from the energy sector were not active early Monday.

“No one wants to trade them, because they don’t know where they’re at,” a source said.

Booking Holdings Inc.’s three tranches of convertible notes were active with stock off following news the online travel fare aggregator would be laying off staff in coming months.

Booking’s recently priced 0.75% convertible notes due 2025 were changing hands around 111.625 with about $7 million in reported volume one hour into the session.

The 0.9% convertible notes due 2021 were trading around 100.875 with a little more than $3 million in reported volume.

The soon-to-mature 0.35% convertible notes due June 15, 2020 were changing hands at 113.75 with $3 million in reported volume about one hour into the session.

Booking Holdings stock was $1,443.72, a decrease of 1.85%, shortly before 11 a.m. ET.

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