Tyler Technologies, Cutera, AES offerings on tap; new convertible notes under pressure

By Abigail W. Adams

Portland, Me., March 3 – The convertibles primary market continued its record-setting pace on Wednesday despite another steep sell-off in equities triggered by rising Treasury yields.

After pricing $3.86 billion over six deals after the market close on Tuesday, two deals totaling $2.25 billion are slated to price after the market close on Wednesday and two deals totaling $2.6 billion are on tap for Thursday.

Tyler Technologies Inc. plans to price $1.6 billion of convertible notes in five- and seven-year tranches, and AES Corp. plans to price $1 billion par-of-$100 three-year equity units after the market close on Thursday.

Cutera Inc. also plans to price $125 million in five-year convertible notes.

Airbnb Inc. is slated to price the largest offering of the year after the market close on Wednesday – a $2 billion megadeal of five-year convertible notes.

The deal, which is talked with a fixed coupon of 0%, comes as several 0% convertible notes struggle in the aftermarket.

However, the deal will get done within its initial terms, a source said.

The RealReal Inc. is also returning to the convertibles market with a $250 million offering of seven-year convertible notes.

The deal looked cheap at the midpoint of talk, according to a market source.

Meanwhile, new paper from PennyMac Corp., Beyond Meat Inc., Haemonetics Corp., Ceridian HCM Holding Inc., Cable One Inc. and Fastly Inc. flooded the secondary space on a brutal day for equity markets.

After a choppy start to the day, the Nasdaq composite closed the day down 2.7%, the S&P 500 down 1.31% and the Russell 2000 down 1.06%.

The majority of new deals struggled in the secondary space with new paper from Haemonetics and PennyMac the only ones to close the day above par.

The low-to-no coupon convertible bonds may have reached their saturation point.

The common stock of convertible issuers is looking like a better play now than the bonds, especially with companies’ balance sheets improved as a result of the convertible issuance, a source said.

For Thursday

Tyler Technologies plans to price $1.6 billion of convertible notes in five- and seven-year tranches after the market close on Thursday, according to a market source.

The deal consists of a $1 billion tranche of five-year notes with talk for a fixed coupon of 0% and an initial conversion premium of 32.5% to 37.5%.

The deal also consists of a $600 million tranche of seven-year notes with price talk for a coupon of 0.25% to 0.75% and an initial conversion premium of 32.5% to 37.5%.

AES also plans to price $1 billion par-of-$100 three-year equity units after the market close on Thursday with price talk for a yield of 6.375% to 6.875% and a threshold appreciation premium of 22.5% to 27.5%, according to a market source.

Cutera is also on deck with a $125 million offering of five-year convertible notes. However, further details were unavailable by press time.

Airbnb on tap

Airbnb plans to sell $2 billion of five-year convertible notes after the market close on Wednesday with price talk for a fixed coupon of 0% and an initial conversion premium of 60% to 65%.

The deal was heard to be in the market with assumptions of 200 basis points over Libor and a 45% vol., according to a market source.

Using those assumptions, the deal looked about 1 point cheap at the midpoint of talk.

While the convertibles market has seen several $1 billion plus deals, Airbnb’s offering is the largest year to date.

Airbnb is also one of the youngest companies to price a convertible bond deal with the online vacation rental marketplace going public as recently as December 2020.

The deal comes amid a sell-off in equities that dragged several recently priced 0% convertible notes below par.

However, the deal was able to clear the market with books closing in the mid-afternoon, a source said. However, pricing is expected to come at the cheap or midpoint of talk, another source said.

RealReal eyed

The RealReal plans to sell $250 million of seven-year convertible notes after the market close on Wednesday with price talk for a coupon of 0.5% to 1% and an initial conversion premium of 32.5% to 37.5%.

The deal was heard to be marketed with assumptions of 475 bps over Libor and a 45% vol., according to a market source.

Using those assumptions, the deal looked 0.71 point cheap at the midpoint of talk.

The deal was heard to be doing well during bookbuilding and is expected to perform well in the secondary, a source said.

PennyMac trades up

PennyMac brought an upsized $300 million, from $200 million, of five-year notes exchangeable for PennyMac Mortgage Investment Trust stock at par with a coupon of 5.5% and an initial exchange premium of approximately 15%.

Pricing came at the midpoint of talk for a coupon of 5.25% to 5.75% and an initial exchange premium of 12.5% to 17.5%, according to a market source.

The 5.5% notes due 2026 were an outlier from the rest of the deals that priced on Tuesday and were putting in a strong performance in the secondary space.

The notes were changing hands at 101.75 heading into the market close.

PennyMac’s stock traded to a high of $19.21 before closing the day at a low of $18.80, a decrease of 0.32%.

Haemonetics prices

Haemonetics sold an upsized $435 million of five-year convertible notes after the market close on Tuesday at par with a 0% coupon and an initial conversion premium of 40%.

Pricing came at the rich end of talk for a coupon of 0% to 0.5% and at the cheap end of talk for an initial conversion premium of 40% to 45%.

The notes held up well despite market conditions on Wednesday.

They were wrapped around par on an outright basis and expanded 1.5 points dollar-neutral, a source said.

Haemonetics’ stock traded to a high of $125.58 and a low of $118.93 before closing the day at $122.22, a decrease of 2.41%.

Cable One below par

Cable One priced an aggregate of $800 million of convertible notes in five- and seven-year tranches after the market close on Tuesday.

The deal consists of an upsized $500 million, from $400 million, tranche of five-year notes, which priced at par with a coupon of 0% and an initial conversion premium of 25%.

Pricing came in line with talk for a fixed coupon of 0% and at the cheap end of talk for an initial conversion premium of 25% to 30%, according to a market source.

The deal also includes an upsized $300 million, from $200 million, tranche of seven-year notes, which priced at par with a coupon of 1.125% and an initial conversion premium of 25%.

Pricing came toward the cheap end of talk for a coupon of 0.75% to 1.25% and at the cheap end of talk for an initial conversion premium of 25% to 30%.

The notes were “a disaster” in the secondary space, a source said.

While largely unchanged dollar-neutral, the 0% convertible notes due 2026 were marked at 97 bid, 97.75 offered in the late afternoon.

The 1.125% convertible notes due 2028 were marked at 97.75 bid, 98.25 offered.

Cable One’s stock traded to a high of $1,801.20 and a low of $1,700.05 before closing the day at $1,746.06.

Beyond Meat contracts

Beyond Meat brought an upsized $1 billion of six-year convertible notes after the market close on Tuesday at par with a coupon of 0% and an initial conversion premium of 47.5%.

Pricing came in line with talk for a fixed coupon of 0% and at the cheap end of talk for an initial conversion premium of 47.5% to 52.5%, according to a market source.

The notes traded down to 99 on an outright basis and contracted about 1 point dollar-neutral, a source said.

Beyond Meat’s stock traded to a high of $140.22 and a low of $135.33 before closing the day at $139.48, a decrease of 0.13%.

Fastly expands

Fastly sold an upsized $825 million of five-year convertible notes after the market close on Tuesday at par with a coupon of 0% and an initial conversion premium of 45%.

Pricing came at the rich end of talk for a coupon of 0% to 0.25% and at the cheap end of talk for an initial conversion premium of 45% to 50%, according to a market source.

While the notes dropped below par on an outright basis, they were expanding dollar-neutral.

The 0% convertible notes were changing hands at 99.25 in the late afternoon. They expanded 1.5 points dollar-neutral, a source said.

Fastly’s stock traded to a high of $71.30 and a low of $66.03 before closing the day at $68.01, a decrease of 4.1%

Ceridian below par

Ceridian priced $500 million of five-year convertible notes after the market close on Tuesday at par with a coupon of 0.25% and an initial conversion premium of 47.5%.

Pricing came at the midpoint of talk for a coupon of 0% to 0.5% and at the cheap end of talk for an initial conversion premium of 47.5% to 52.5%, according to a market source.

The 0.25% notes were also trading well below par on Wednesday.

They were seen changing hands at 97.875 versus a stock price of $85.53 heading into the close.

Ceridian’s stock traded to a high of $89.78 and a low of $84.84 before closing the day at $85.52, a decrease of 4.59%.

Mentioned in this article:

AES Corp. NYSE: AES

Airbnb Inc. Nasdaq: ABNB

Beyond Meat Inc. Nasdaq: BYND

Cable One Inc. NYSE: CABO

Ceridian HCM Holding Inc. NYSE: CDAY

Fastly Inc. NYSE: FSLY

Haemonetics Corp. NYSE: HAE

PennyMac Corp. NYSE: PMT

RealReal Inc. Nasdaq: REAL

Twitter Inc. NYSE: TWTR

Tyler Technologies Inc. NYSE: TYL

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