Snap readies new convertibles offering; outstanding issues contract; Peloton active

By Abigail W. Adams

Portland, Me., Feb. 8 – The convertibles primary market returned to action on Tuesday with the largest deal of 2022 on deck.

Snap Inc. plans to price $1.25 billion of six-year convertible notes after the market close on Tuesday.

The deal played to solid demand during bookbuilding with the market hungry for new paper.

However, some sources were wary of the offering.

While market players eyed the new deal on deck, Snap’s outstanding issues were coming in on an outright and dollar-neutral basis.

Meanwhile, the tone in the secondary space was mixed on Tuesday as equities rallied despite the continued climb of the 10-year Treasury yield.

The Dow Jones industrial average closed the day up 372 points, or 1.06%, the S&P 500 index closed up 0.84%, the Nasdaq Composite closed up 1.28%, and the Russell 2000 index closed up 1.63%.

The 10-year Treasury yield climbed as high as 1.971% before closing the day at 1.964%.

There was $150 million of convertibles secondary trading on the tape about one hour into the session and $714 million heading into the market close.

There were plenty of buyers in the market although some paper remained for sale, a source said.

“It’s a decent risk appetite all things considered,” the source said.

Peloton Interactive Inc.’s 0% convertible notes due 2026 remained active on the heels of the company’s earnings report and news of the CEO’s departure.

Snap in focus

Snap plans to price $1.25 billion of six-year convertible notes after the market close on Tuesday with initial price talk for a coupon of 0.125% to 0.625% and an initial conversion premium of 45% to 50%.

However, the coupon range narrowed to 0.125% to 0.375% and the conversion premium range narrowed to 47.5% to 50% prior to books closing, a source said.

The deal was heard to be in the market with assumptions of 225 basis points over Libor and a 45% vol.

Using those assumptions, the deal looked 1.5 points cheap at the midpoint of initial talk, sources said.

The deal played to solid demand with the market hungry for new paper, a source said.

However, there was some wariness about the deal, especially from outright accounts.

“Do we really need another high premium bond with no yield,” a source said.

The market is also already saturated with Snap paper – one issue which is deep in the money, another which is busted.

“It’s a crowded trade,” a source said of Snap paper.

As the camera and social media company readied its latest offering, its outstanding convertible notes were taking a hit.

Snap’s 0% convertible notes due 2027 dominated activity in the secondary space.

The notes were changing hands at 86.125 versus a stock price of $35.20 early in the session.

They were trading at 87.625 versus a stock price of $37.40 in the late afternoon.

The notes contracted 1.5 to 2 points dollar-neutral, a source said.

Holders of the 0% notes were selling to buy the new ones with the latest deal offering a more balanced profile, a source said.

There was $62 million in reported volume.

While less active, the 0.75% convertible notes were down about 4 points outright.

They were changing hands at 176.75 versus a stock price of $36.37 early in the session.

However, the equity sensitive notes rose alongside stock as the session progressed and stood poised to close the day at 182.25.

Snap’s stock traded to a low of $34.87 and a high of $37.76 before closing the day at $37.56, a decrease of 0.84%.

Snap’s convertible notes were in focus last week as stock saw huge movements around its earnings report.

While stock cratered 25% in the run up to earnings, it jumped 58% after earnings came out last Friday.

Peloton’s earnings

Peloton’s 0% convertible notes due 2026 continued to see high-volume activity on Tuesday following the release of earnings and news the company’s CEO would step down.

The notes were wrapped around 91 in the high-volume activity.

There was $31 million in reported volume.

Peloton’s stock traded to a low of $29.70 and a high of $40.35 before closing the day at $37.27, an increase of 25.28%.

However, Peloton’s convertible notes have long been busted and mostly trade outright.

The convertible notes surged 6 points on Monday as takeover rumors swirled around the company.

Peloton’s latest moves shed little light on whether the company would consider takeover offers.

Peloton missed analyst expectations on earnings, reporting a loss per share of $1.22 versus analyst expectations for a loss per share of 92 cents.

Revenue was $1.13 billion versus the $1.15 billion expected.

While earnings disappointed, stock surged following news CEO John Foley would step down, a move activist investor Blackwells Capital had lobbied for, and was laying off 2,800 employees.

Blackwells Capital has also pushed the company to consider takeover offers.

However, Peloton’s cost-cutting initiative may indicate the company may try to continue to operate on its own, a source said.

Mentioned in this article:

Peloton Interactive Inc. Nasdaq: PTON

Snap Inc. NYSE: SNAP

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.