Hedge players hurt by Tyler convertibles restructuring; secondary volatile; AES weak

By Abigail W. Adams

Portland, Me., March 5 – The convertibles primary market capped a record-setting week for new deal activity with another $1.65 billion pricing on Thursday over three deals.

However, the carnage on the new deal front took its toll on the pricing with one deal restructuring and pricing wider than initial talk and the other two pricing on the cheap end of talk.

Tyler Technologies Inc. priced a massively downsized $525 million offering of five-year convertible notes after the market close on Thursday.

The deal was initially marketed as a $1.6 billion two-tranche offering.

Hedge players that had already shorted the stock were hurt by the restructuring.

AES Corp. priced $1 billion par-of-$100 three-year equity units and Cutera Inc. sold $125 million of five-year convertible notes after the market close on Thursday.

The new paper hit the secondary space on a wild day for the market.

There was panicked selling early in the session as the sell-off in equities accelerated early in the session, a source said.

However, the market firmed as equities staged a dramatic rebound.

The Nasdaq composite slid another 2% before staging a rebound and closing the day up 1.55%.

While Tyler’s new convertible notes skyrocketed on an outright basis, the gains were largely due to hedge players scrambling to buy back the stock they shorted.

AES’ equity units were soft on an outright and dollar-neutral basis.

While volume was light, Cutera’s convertible notes were performing well.

However, losses continued to mount for several recent deals.

The RealReal Inc.’s 1% convertible notes due 2028 traded as low as 93 on an outright basis.

Fastly Inc.’s 0% convertible notes due 2026 also sank further below par, although they continued to hold on a dollar-neutral basis.

Tyler downsizes

Tyler Technologies priced a downsized $525 million offering of five-year convertible notes after the market close on Thursday at par with a coupon of 0.25% and an initial conversion premium of 30%, according to a company news release.

Pricing came in line with revised talk for a coupon of 0.25% and at the cheap end of revised talk for an initial conversion premium of 30% to 32.5%, according to a market source.

Initial talk was for a fixed coupon of 0% and an initial conversion premium of 32.5% to 37.5%.

The deal was initially marketed as a $1.6 billion two-tranche offering of convertible notes, which included a five-year tranche and a seven-year tranche.

The five-year tranche was initially sized at $1 billion with a $150 million greenshoe.

The seven-year tranche was sized at $600 million and initially talked with a coupon of 0.25% to 0.75% and an initial conversion premium of 32.5% to 37.5%.

Talk widened during bookbuilding to a coupon of 1% and an initial conversion premium of 30% to 32.5%.

However, the tranche was withdrawn.

Hedge players got “#@$ed,” a source said.

Hedge players that had already shorted the company’s stock were left scrambling to buy it back with the size of the deal slashed by more than two-thirds.

Ironically, the activity caused Tyler Technologies’ stock to spike, which lifted the 0.25% convertible notes on an outright basis.

The 0.25% notes traded as high as 109 early in the session. It was changing hands at 106 heading into the market close.

Tyler’s stock traded to a high of $432.99 and a low of $398.24 before closing the day at $401.06, an increase of 5.66%.

AES taps market

AES priced $1 billion par-of-$100 three-year equity units after the market close on Thursday at the cheap end of talk with a coupon of 6.875% and a threshold appreciation premium of 22.5%.

Price talk was 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.

The equity units were marked at $99.8 bid, $100.05 offered early in Friday’s session, according to a market source.

They dropped down to $99.5 bid as the session progressed.

AES’ stock traded to a high of $26.24 and a low of $24.83 before closing the day at $25.99, an increase of 0.46%.

Cutera gains

Cutera sold $125 million of five-year convertible notes after the market close on Thursday at par with a coupon of 2.25% and an initial conversion premium of 27.5%.

The convertibles priced at the cheap end of talk, which called for a coupon of 1.75% to 2.25% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

While volume in the small issue was light, they were performing well, a source said.

The 2.25% notes were marked at 102.5 bid, 103.5 offered in the late afternoon.

Cutera’s stock traded to a low of $25.60 and a high of $28.78 before closing the day at $28.24, an increase of 8.53%.

Ouch

Losses continued to mount for several recent deals as panicked selling gripped the market early in the session before the market firmed amid a dramatic rebound in equities.

RealReal’s 1% convertible notes due 2028, which made their aftermarket debut on Thursday, traded as low as 93 early in the session.

However, the notes bounced off their lows and were marked at 95.5 bid, 96.5 offered in the late afternoon, a source said.

RealReal’s stock traded to a high of $22.68 and a low of $19.63 before closing the day at $22.01, a decrease of 1.03%.

Fastly’s 0% convertible notes due 2026, which made their aftermarket debut on Wednesday, also sank further below par.

The 0% notes traded down to a 97-handle, a source said.

However, they continued to hold up well on hedge.

Fastly’s stock traded to a high of $66.50 and a low of $58.21 before closing the day at $64.84, a decrease of 0.99%.

Mentioned in this article:

AES Corp. NYSE: AES

Cutera Inc. Nasdaq: CUTR

Fastly Inc. NYSE: FSLY

RealReal Inc. Nasdaq: REAL

Tyler Technologies Inc. NYSE: TYL

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