Plug Power, Veeco eyed; $2.04 billion of paper floods secondary; most trades below par

By Abigail W. Adams

Portland, Me., May 13 – The convertibles primary market’s new deal flow slowed to a steady stream on Wednesday with two overnight offerings totaling $350 million on deck following the torrent of $2.04 billion in five deals that priced after the market close on Tuesday.

Plug Power Inc. plans to price $200 million of five-year convertible notes and Veeco Instruments Inc. plans to sell $150 million of seven-year convertible notes after the market close on Wednesday.

The deals looked cheap based on underwriters’ assumptions, sources said. However, some sources questioned the credit spread used for Veeco.

Plug Power’s latest offering makes history as the first green convertible bond offering to be marketed in the United States.

As market players eyed the new deals in the pipeline, the secondary space was again flooded with $2.04 billion of new paper.

After the market close Tuesday, Lyft Inc. priced $650 million of five-year convertible notes, Cloudflare Inc. sold $500 million five-year convertible notes, Zillow Group Inc. priced $500 million of five-year convertible notes, Tandem Diabetes Care Inc. priced $250 million of five-year convertible notes and Cantel Medical Corp. brought a downsized $140 million five-year convertible notes.

The new paper hit the secondary space on a brutal day for equities with the Dow Jones industrial average, S&P 500 and Nasdaq Composite all closing the day down more than 2%.

The majority of new paper dropped below par on their secondary market debut and was contracted dollar-neutral, sources said.

Veeco eyed

Veeco Instruments plans to price $150 million of seven-year convertible notes after the market close on Wednesday with price talk for a coupon of 3.25% to 3.75% and an initial conversion premium of 32.5% to 37.5%.

The deal was heard to be in the market with assumptions of 850 basis points over Libor and a 40% vol.

Using those assumptions, the deal looked about 4.2 points cheap at the midpoint of talk, a market source said.

However, the 850 bps credit spread was “aggressive,” a market source said.

Veeco’s 2.7% convertible notes due 2023 trade with a spread of 1,000 bps over Libor.

While proceeds from Veeco’s latest offering will be used to buy back the 2.7% convertible notes due 2023 in privately negotiated transactions, the 2.7% notes currently have $350 million outstanding and the company’s market cap is $650 million, a source said.

The manufacturer of semiconductor process equipment has positive EBITDA and cash flow, but “just barely,” the source said.

The source pegged the credit spread for the new offering at 1,200 bps, which modeled about 2 points rich at the midpoint of talk.

While some sources were skeptical about the offering, the books closed in the midafternoon with no issues crossing the finish line.

Plug’s green convertible

Plug Power plans to price $200 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 3.25% to 3.75% and an initial conversion premium of 22.5% to 27.5%, according to a market source.

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

Using those assumptions, the deal looked about 5.875 points cheap at the midpoint of talk, a market source said.

Plug Power’s offering marks the first green convertible bond offering in the United States with proceeds going toward green initiatives.

The designation broadens the investor base for the convertible, sources said.

With the influx of new paper in recent weeks, the convertible market may start to see an influx of non-traditional buyers, a source said.

Proceeds will be used to fund strategic initiatives related to the company’s green hydrogen strategy and to repurchase its outstanding 5.5% convertible notes due 2023.

Lyft’s first convertible

Lyft priced $650 million of five-year convertible notes after the market close on Tuesday at par at the midpoint of talk with a coupon of 1.5% and an initial conversion premium of 30%.

Price talk was for a yield of 1.25% to 1.75% and an initial conversion premium of 27.5% to 32.5%.

The new paper saw a lackluster reception in the secondary space.

The notes were changing hands between 99 and par early in the session with stock off about 2%, a market source said.

They continued to trade off as the sell-off in stock intensified into the afternoon.

The notes were quoted at 97.5 bid, 98.5 offered and were contracted dollar-neutral in the late afternoon, sources said.

The bonds saw more than $84 million in reported volume.

Lyft stock traded to a high of $29.90 and a low of $27.11 before closing the day at $28.37, a decrease of 3.93%.

Zillow below par

Zillow Group sold $500 million of five-year convertible notes after the market close on Tuesday at the midpoint of talk at par with a coupon of 2.75% and an initial conversion premium of 40%.

Price talk was for a coupon of 2.5% to 3% and an initial conversion premium of 37.5% to 42.5%.

Concurrently with the convertible notes offering, the company intends to repurchase $194.7 million of its 2% convertible notes due 2021 in privately negotiated transactions for a total repurchase cost of $232.6 million, which consists of $196.4 million in cash and 753,936 shares of class C capital stock.

The company also priced a secondary offering of $384 million, or 8 million shares, of its class C capital stock at a public offering price of $48.00.

Zillow’s new 2.75% notes were also trading below par on an outright basis.

They were changing hands between 98 and 99 about one hour into the session with stock down about 4%.

The notes continued to trend lower as the session progressed.

They traded as low as 96.625 but closed the day at 99.25, sources said.

The bonds saw about $88 million in reported volume during Wednesday’s session.

Zillow stock traded to a high of $47.72 and a low of $45.04 before closing the day at $46.53, a decrease of 5.47%.

Tandem outperforms

Tandem Diabetes priced $250 million of five-year convertible notes after the market close on Tuesday at par at the cheap end of talk with a coupon of 1.5% and an initial conversion premium of 30%.

Price talk was for a coupon of 1% to 1.5% and an initial conversion premium of 30% to 35%, according to a market source.

While the majority of deals to hit the aftermarket on Wednesday sank below par, Tandem’s new 1.5% notes outperformed.

The notes traded as high as 104 early in the session with the majority of trades between 102.5 and 103.5.

The came in as stock dropped off into the afternoon. While the notes briefly dropped below par, they rebounded and were changing hands at 101.875 in the late afternoon.

The notes were expanded as much as 3 points in intraday activity but gave back some of their gains.

They were up about 1 point dollar-neutral heading into the market close, a market source said.

The bonds saw more than $43 million in reported volume.

Tandem stock traded to a high of $87.77 and a low of $82.20 before closing the day at $83.73, a decrease of 3.3%.

Cloudflare trades up

Cloudflare sold $500 million five-year convertible notes after the market close on Tuesday at par at the midpoint of talk with a coupon of 0.75% and an initial conversion premium of 30%.

Price talk was for a coupon of 0.5% to 1% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The new 0.75% notes were changing hands between par and 101 early in the session with stock down about 1%.

The notes sank below par as stock continued to trend lower into the afternoon. The notes were changing hands at 99.625 in the late afternoon.

However, they gained strength into the market close and ended the day above par at 100.375, a source said.

With about $126 million in reported volume, the notes were the most actively traded in the secondary space.

Cloudflare stock traded to a high of $28.90 and a low of $26.82 before closing the day at $27.87, a decrease of 3.2%.

Cantel downsizes

Cantel Medical priced a downsized $140 million five-year convertible notes after the market close on Tuesday at par at the cheap end of talk with a coupon of 3.25% and an initial conversion premium of 30%.

Price talk was for a coupon of 2.75% to 3.25% and an initial conversion premium of 30% to 35%, according to a market source.

The initial size of the offering was $150 million.

The notes traded down to 96 on Wednesday with more than $23 million in reported volume.

Cantel stock traded as high as $32.05 and as low as $29.34 before closing the day at $31.34, a decrease of 1.85%.

Mentioned in this article:

Cantel Medical Corp. NYSE: CMD

Cloudflare Inc. NYSE: NET

Lyft Inc. Nasdaq: LYFT

Plug Power Inc. Nasdaq: PLUG

Tandem Diabetes Care Inc. Nasdaq: TNDM

Veeco Instruments Inc. Nasdaq: VECO

Zillow Group Inc. Nasdaq: Z

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