Carnival convertibles volatile on debut; Nevro skyrockets; Luckin Coffee nosedives

By Abigail W. Adams

Portland, Me., April 2 – After a nearly month-long hiatus, the convertibles primary market returned to action over the past week with two deals pricing.

Carnival Corp. priced $1.75 billion of three-year convertible notes after the market close on Wednesday, and Nevro Corp. sold $165 million of five-year convertible notes prior to the market open on Thursday.

The new paper dominated activity in the secondary space.

Carnival’s convertible notes were volatile on an outright and dollar-neutral basis while Nevro’s new paper skyrocketed.

Outside of the new issues, Luckin Coffee Inc.’s 0.75% convertible notes due 2025 nosedived in active trading on Thursday after the company announced sales had been fabricated in 2019.

Carnival volatile

Carnival’s newly priced convertible notes dominated activity in the secondary space on Thursday and were volatile on an outright and dollar-neutral basis.

Carnival priced $1.75 billion of three-year convertible notes (BBB-) after the market close on Wednesday at par with a coupon of 5.75% and an initial conversion premium of 25%.

Pricing came at the cheap end of tightened talk for a coupon of 5.5% to 5.75% and at the rich end of talk for an initial conversion premium of 22.5% to 25%, according to a market source.

Initial price talk was for a coupon of 5.75% to 6.25% and an initial conversion premium of 17.5% to 22.5%.

Concurrently with the convertible note offering, Carnival priced a secondary offering of $500 million, or 62.5 million shares at $8.00 a share.

The stock offering was decreased from a proposed $1.25 billion.

The company also priced an upsized $4 billion of three-year first-priority senior secured notes at 99 with a coupon of 11½% to yield 11.901%. The senior notes were upsized from $3 billion.

The notes were volatile as stock wavered between gains and losses.

The notes saw some trades as low as 98 shortly after the opening bell.

They climbed as high as 105 in intraday trading but dropped back down to par in the late afternoon, a market source said.

They were seen at 99 bid, par offered at the market close.

Some sources saw the notes expanded upwards of 2 points dollar-neutral in intraday trading, a market source said.

Another source saw the notes up 1 point dollar-neutral but saw them unchanged at the market close.

The notes modeled more than 8 points cheap at the midpoint of initial price talk based on underwriters’ assumptions of 1,400 bps over Libor and 40% vol.

They looked a little more than 5.25 points cheap based on final pricing terms.

The notes were trading cheap compared to how they modeled, a source said.

Carnival’s convertible notes dominated activity in the secondary with more than $339 million in reported volume.

Carnival stock also wavered between large gains and losses during Thursday’s session. Stock traded as high as $9.00 in pre-market activity.

After the opening bell, stock traded to a high of $8.53 and a low of $7.80 before closing the day at $7.97, a decrease of 9.43%.

Nevro skyrockets

In an overnight deal, Nevro priced $165 million of five-year convertible notes prior to the market open on Thursday at par with a coupon of 2.75% and an initial conversion premium of 25%.

Pricing came at the rich end of talk for a coupon of 2.75% to 3.25% and the midpoint of talk for an initial conversion premium of 22.5% to 27.5%, according to a market source.

The notes priced concurrently with a $136.5 million, or 1,625,000 share, offering of common stock, which priced at $84.00 a share.

The convertible notes were marketed with assumptions of 1,000 bps over Libor and a 40% vol., which modeled almost 4 points cheap at the midpoint of talk, sources said.

The credit spread seemed wide. However, the company’s outstanding convertible notes also always traded with a wide spread, a source said.

The deal was wall-crossed with proceeds to be used, in part, to repurchase and retire the global medical device company’s outstanding 1.75% convertible notes due 2021 in privately negotiated transactions.

Nevro’s 2.75% notes were second only to Carnival in trading volume during Thursday’s session with $60 million in reported volume heading into the market close.

The notes skyrocketed on both an outright and dollar-neutral basis.

The 2.75% notes traded as high as 110.5 in intraday trading and closed the day at 108.75, sources said.

They were expanded 2.5 to 3 points dollar-neutral, sources said.

Nevro stock traded to a low of $82.96 and a high of $96.11 before closing the day at $95.27, an increase of 6.51%.

Luckin nosedives

Luckin Coffee’s 0.75% convertible notes due 2025 nosedived on both an outright and dollar-neutral basis on Thursday after an internal investigation revealed sales figures in 2019 had been doctored.

The 0.75% notes sank almost 60 points outright.

They traded as low as 14.5 in intraday trading but rebounded to change hands at 21 in the late afternoon, sources said.

The notes were contracted 30 points dollar-neutral, a market source said.

There was more than $32 million in reported volume heading into the market close.

Luckin’s equity traded to a high of $10.58 and a low of $4.90 before closing the day at $6.40, a decrease of 75.57%.

The Beijing-based coffee shop chain revealed prior to the market open that an internal investigation found its chief operating officer had fabricated sales in 2019 by about $310 million.

Luckin’s equity and convertible notes were volatile in early February after an anonymous report circulated through the market alleging the company was responsible for financial improprieties.

Short-seller Muddy Waters Capital announced it was shorting the company as a result of the report, which it found to be credible.

Short-seller Citron Research, on the other hand, questioned the report’s validity and announced it was going long in the company.

Mentioned in this article:

Carnival Corp. NYSE: CCL

Luckin Coffee Inc. Nasdaq: LK

Nevro Corp. NYSE: NVRO

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