Farfetch upsizes convertibles; Copa looks cheap; American Eagle soars; Snap, 2U gain

By Abigail W. Adams

Portland, Me., April 27 – The convertibles primary market promised another active week and rolled out two overnight deals on Monday.

Copa Holdings SA plans to price $350 million of five-year convertible notes and Farfetch Ltd. plans to price an upsized $350 million of seven-year convertible notes after the market close on Monday.

The deals looked cheap, sources said. Farfetch was heard to be heavily oversubscribed with the deal upsized and talk tightened.

Meanwhile, it was a strong day in the convertibles secondary space with several recent deals making large gains.

While the notes initially struggled, American Eagle Outfitters, Inc.’s 3.75% convertible notes due 2025 soared on an outright basis and were improving dollar-neutral as the retailer’s stock caught a bid.

2U Inc.’s 2.25% convertible notes due 2025 were also posting gains with the notes popping back above par.

Snap Inc.’s 0.25% convertible notes due 2025 were making gains on an outright and dollar-neutral basis their second day in the secondary space.

Copa notes look cheap

Copa Holdings plans to price $350 million of five-year convertible notes after the market close on Monday with price talk for a coupon of 4% to 4.5% and an initial conversion premium of 25% to 30%.

The deal was heard to be in the market with assumptions of 1,000 basis points over Libor and a 40% vol., according to a market source.

Using those assumptions, the deal modeled about 6.5 points cheap at the midpoint of talk.

The offering was another example of “rescue financing,” a source said.

The Panama City-based parent company of Copa Airlines has taken an enormous hit from the coronavirus pandemic alongside the broader travel industry.

The company recently reported a decline in passenger revenue of 43% for March with the company’s operations suspended on March 23.

The airline hopes to resume operations on June 1 with humanitarian flights beginning on May 23, the company said in a press release.

However, sources were skeptical.

The company has a good plan for its balance sheet, a source said. However, the question is whether the company will be able to get back to work, the source said.

Other sources were also skeptical about the offering. While the deal will get done, books didn’t close until late in the day, a source said.

Farfetch tightens talk

Farfetch’s offering of seven-year convertible notes was heard to be in demand during bookbuilding with the deal upsizing and talk tightening.

Farfetch plans to price an upsized $350 million of seven-year convertible notes with revised talk for a coupon of 3.5% to 3.75% and an initial conversion premium of 35% to 37.5%, according to a market source.

The greenshoe was also upsized to $50 million.

Initial price talk was for a coupon of 3.5% to 4% and an initial conversion premium of 32.5% to 37.5%.

The greenshoe was also upsized to $50 million.

The initial size of the deal was $300 million with a greenshoe of $45 million.

The deal was heard to be in the market with assumptions of 900 bps over Libor and a 40% vol., according to a market source.

Using those assumptions, the deal looked about 4.25 points cheap at the midpoint of initial price talk, sources said.

The online fashion retailer released preliminary first-quarter earnings last week.

The company expects losses of $70 million to $125 million in the first quarter and withdrew guidance.

However, the company stated in a press release that it has been largely immune to the economic impact of the coronavirus, due to its business model, which predominantly focuses on online sales.

American Eagle catches a bid

American Eagle’s 3.75% convertible notes due 2025 soared on an outright basis and were improving dollar-neutral as stock caught a bid on Monday.

The notes gained more than 6.5 points outright to trade up to 106.875 in the late afternoon.

They expanded about 0.25 point dollar-neutral, a source said.

The notes were major volume movers on Monday with about $22 million in reported volume.

American Eagle stock traded to a low of $6.93 and a high of $7.85 before closing the day at $7.79, an increase of 13.89%.

The 3.75% notes have struggled since their market debut on April 23. Until Monday’s session, they have largely traded below par and had contracted about 1 point since issue, sources said.

2U above par

2U’s recently priced 2.25% convertible notes due 2025 were also improved on Monday.

The notes popped above par for the first time since hitting the aftermarket on April 21.

The 2.25% notes gained almost 3 points outright to trade up to 101.625 in the late afternoon.

The notes were active with more than $12.5 million in reported volume.

2U stock traded to a low of $21.98 and a high of $23.18 before closing the day at $23.02, an increase of 4.92%.

Snap day two

Snap’s newly priced 0.25% convertible notes due 2025 gained on an outright and dollar-neutral basis on Monday.

The notes traded up to a 103-handle.

They gained another 0.125 point to 0.25 point dollar-neutral, a market source said.

With more than $23 million in reported volume by the late afternoon, the notes were among the most actively traded in the secondary space.

Snap stock traded to a low of $16.10 and a high of $17.00 before closing the day at $16.91, an increase of 5.69%.

The notes gained more than 1 point dollar-neutral on their market debut on April 24.

Mentioned in this article:

2U Inc. Nasdaq: TWOU

American Eagle Outfitters, Inc. NYSE: AEO

Copa Holdings SA NYSE: CPA

Farfetch Ltd. NYSE: FTCH

Snap Inc. NYSE: SNAP

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