Morning Commentary: Xerox convertibles gain on debut; Avid Bioservices prices overnight

By Abigail W. Adams

Portland, Me., March 7 – The convertibles primary market appeared closed for the week with no further deals announced on Thursday after two priced post-close the previous session.

While the March 3 week stands out as a historic week for issuance with March 5 in the running for the heaviest volume day for new deal activity in more than a decade, the market showed few signs of indigestion with Xerox Holdings Corp.’s offering of six-year convertible notes (B1/BB) upsizing and pricing through initial talk.

While an outlier to the deluge of deals over the past week, Avid Bioservices Inc. sold $160 million of 7% convertible senior notes due 2029 in an overnight offering.

The deal had a limited audience and was done due to necessity after the company got hit with an acceleration notice.

The secondary space showed signs of settling as the deals to price the previous session got tucked away with new paper from Xerox in focus.

Equities markets saw a strong start on Thursday with the Dow Jones industrial average up 237 points, or 0.61%, the S&P 500 index up 0.96%, the Nasdaq Composite index up 1.2% and the Russell 2000 index up 0.82% shortly before 11 a.m. ET.

There was $134 million in reported convertible bond trading volume about one hour into the session with Xerox’s new notes strong on debut.

Xerox trades up

Xerox priced an upsized $350 million of six-year convertible notes (B1/BB) after the market close on Wednesday at par with a coupon of 3.75% and an initial conversion premium of 25%.

Pricing came tighter than the rich end of initial talk for a coupon of 4% to 4.5% and an initial conversion premium of 17.5% to 22.5%, according to a market source.

The new paper was trading up on an outright basis with stock in the green early in the session.

The new 3.75% convertible notes were seen wrapped around 101 versus a stock price of $17.06 about one hour after the opening bell, according to a market source.

There was $21 million in reported volume.

Xerox’s stock traded as high as $17.24 after the opening bell but dipped into negative territory and was trading at $16.66, a decrease of 0.09%, shortly before 11 a.m. ET.

Avid’s overnight

In an overnight offering, Avid Bioservices sold $160 million of 7% convertible senior notes due 2029 after the market close on Wednesday with an initial conversion price of 12.5%.

Proceeds were designated for the repurchase of a portion of the 1.25% exchangeable notes due 2026 in privately negotiated transactions and to repay in full any outstanding amounts after the repurchases.

The deal played to a limited audience and was done out of necessity after the company got hit with an acceleration notice for the 1.25% exchangeable notes.

A holder of more than 25% of the outstanding amount of the 1.25% notes declared the full outstanding amount and unpaid interest to be due immediately due to an event of default.

The acceleration notice stated the company did not remove a restrictive legend on the 1.25% notes as required by March 17, 2022 making the notes subject to an additional interest rate of 0.5%.

The company did not pay the additional interest, creating a default event, according to an 8-K filing with the Securities and Exchange Commission.

The acceleration event on the exchangeable notes triggered a cross-default under the company’s credit agreement with the Bank of America, NA.

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