Morning Commentary: Halozyme, Enphase Energy convertibles eyed; Dropbox up on debut

By Abigail W. Adams

Portland, Me., Feb. 24 – The convertibles primary market continued to roll out new deals as equity markets struggled to find direction early Wednesday.

Two large offerings totaling $1.5 billion are set to price after the market close.

Halozyme Therapeutics Inc. plans to price $500 million of six-year convertible notes and Enphase Energy Inc. plans to sell $1 billion of convertible notes in five- and seven-year tranches after the market close on Wednesday.

The pricing of the notes remained aggressive. However, both deals involved repurchases of outstanding issues and investor demand remains strong despite the tumult in equities.

Meanwhile, Dropbox Inc.’s new convertible notes were in focus in the secondary space with the notes performing well on debut.

Halozyme eyed

Halozyme Therapeutics plans to price $500 million of six-year convertible notes after the market close on Wednesday with price talk for a coupon of 0.25% to 0.75% and an initial conversion premium of 45% to 50%, according to a market source.

Underwriters were marketing the deal with assumptions of 275 basis points over Libor and a 38% vol., according to a market source.

Using those assumptions, the deal looked 0.35 point cheap at the midpoint of talk.

The biotech company is a heavily shorted name with short interest 11.37%, according to a market source.

However, the company is using proceeds to fund the exchange of its 1.25% convertible notes due 2024 for cash and shares.

Enphase on tap

Enphase Energy plans to price $1 billion of convertible notes in five- and seven-year tranches after the market close on Wednesday.

The deal consists of a $500 million tranche of five-year notes with price talk for a coupon of 0% to 0.25% and an initial conversion premium of 60% to 65%, according to a market source.

The deal also consists of a $500 million tranche of seven-year notes with price talk for a coupon of 0% to 0.5% and an initial conversion of 50% to 55%.

Concurrently, the company will enter into privately negotiated transactions to repurchase a portion of its 1% convertible notes due 2024 and its 0.25% convertible notes due 2025 for cash and shares.

The five-year notes were heard to be in the market with assumptions of 250 bps over Libor and a 50% vol., according to a market source.

Using those assumptions, the deal looked 1.67 points cheap at the midpoint of talk.

The 2028 notes were heard to be marketed with assumptions of 275 bps over Libor and a 48% vol., which looked 0.6 point cheap at the midpoint of talk.

Dropbox in focus

Dropbox’s two tranches of convertible notes were in focus in the secondary space with the demand seen during bookbuilding following them into the secondary space.

Despite a brutal sell-off in the tech sector on Tuesday, the file sharing company priced an upsized $1.306 billion of convertible notes in five- and seven-year tranches.

The deal consists of an upsized $653 million tranche of five-year notes, which priced with a coupon of 0% and an initial conversion premium of 65%.

The deal also consists of an upsized $653 million tranche of seven-year notes, which priced with a coupon of 0% and an initial conversion premium of 52.5%.

Pricing of the five-year notes came in line with talk for a fixed coupon of 0% and at the rich end of tightened talk for a coupon of 65%.

Talk for the five-year notes tightened to an initial conversion premium of 60% to 65%. Initial talk was for a fixed coupon of 0% and an initial conversion premium of 55% to 60%.

Pricing of the seven-year notes came at the rich end of talk for a coupon of 0% and an initial conversion premium of 52.5%.

Price talk was for a coupon of 0% to 0.5% and an initial conversion premium of 47.5% to 52.5%.

The greenshoe on both tranches was upsized to $65.3 million.

The initial size of the offering was $1.135 billion split equally into two $567.5 million tranches with both tranches carrying a greenshoe of $56.75 million.

Both tranches were trading in a range of par to 101 early in the session with the 2028 notes lagging the 2026 notes by about 0.125 point, a source said.

Dropbox’s stock was changing hands at $22.97, a decrease of 0.95%, shortly before 11 a.m. ET.

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