Weibo on deck; PG&E plays to heavy demand; Pinduoduo active; FarFetch volatile

By Abigail W. Adams

Portland, Me., Nov. 29 – The convertible primary market returned to action on Wednesday with highly anticipated new deals on deck.

Weibo Corp. plans to price $300 million of seven-year convertible notes prior to the market open on Thursday with price talk for a coupon of 1.125% to 1.625% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

Goldman Sachs & Co. LLC is sole bookrunner for the Rule 144A deal, which carries a greenshoe of $30 million.

PG&E Corp. plans to price $1.5 billion in four-year secured convertible notes after the market close on Wednesday.

The deal modeled cheap and played to heavy demand during bookbuilding with the offering several times oversubscribed and pricing coming at the mid-to-rich point of talk, sources said.

Meanwhile, Wednesday marked another strong session for the convertible secondary space despite another mixed session for equities.

The Dow Jones industrial average closed Wednesday up 13 points, or 0.04%, the S&P 500 index closed down 0.09%, the Nasdaq Composite index closed down 0.16% and the Russell 2000 index closed up 0.61%.

There was $69 million in reported convertible bond trading volume about one hour into the session and $500 million on the tape about one hour before the market close.

Pinduoduo Inc.’s 0% convertible notes due 2025 remained in focus with Wednesday marking the last day for holders to submit the notes for their upcoming put.

Farfetch Ltd.’s 3.75% convertible notes due 2027 went on a wild ride over the past two sessions.

The notes skyrocketed on Tuesday on market chatter the company was considering going private only to plunge on Wednesday after the company delayed the release of its earnings report.

“No one knows what’s going on,” a source said.

PG&E plays to heavy demand

PG&E plans to price $1.5 billion in four-year secured convertible notes after the market close on Wednesday with price talk for a coupon of 4.25% to 4.75% and an initial conversion premium of 30% to 35%.

The deal was heard to be in the market with assumptions of 300 basis points over SOFR and a 21% vol.

Using those assumptions, the deal looked about 2.45 points cheap at the midpoint of talk, a source said.

While investment-grade utility companies have become a well-known trade in the convertibles market over the past year, PG&E’s offering is unique with the utility company still recovering from its spectacular fall into bankruptcy in 2019.

The convertible notes will be secured, which is highly unusual, a source said.

They will be secured on a first-lien basis by PG&E’s 100% ownership interest of the common stock of subsidiary Pacific Gas and Electric Co.

The notes will rank junior to current and future secured obligations secured by assets and junior to secured obligations under its revolving credit facility.

They will be equal to other obligations secured by common stock and senior to the company’s unsecured obligations.

PG&E collapsed in 2019 due to liability costs from California’s deadly wildfires with the company plunging from high-grade status to a bankruptcy filing in the span of one month.

The utility emerged from bankruptcy in 2020 and currently has junk ratings.

There was some debate over the credit assumption with some sources finding the 300 bps spread somewhat conservative while others thought it was slightly aggressive.

While the convertible notes will be secured, “they’re essentially telling you that they’re senior to equity,” a source said. “But they still have a ton of debt.”

The convertible notes will be used to repay a portion of the company’s outstanding $2.66 billion secured term loan maturing on June 23, 2025.

The deal was heard to be playing to heavy demand with the offering several times oversubscribed.

Pricing was believed to be coming at the mid-to-rich point of talk.

Pinduoduo active

Pinduoduo’s 0% convertible notes due 2025 continued to see heavy volume on Wednesday, which marked the last day holders could submit the notes for their Dec. 1, 2023 put.

However, with the company’s equity price returning the notes to the land of balanced convertibles, they were no longer a yield play.

The 0% notes were largely flat on Wednesday as equity continued its strong uptrend.

The notes were changing hands at 100.25 versus a stock price of $140.89 in the late afternoon, according to a market source.

There was $44 million in reported volume.

Pinduoduo’s American Depositary Shares added to the double-digit gains of the previous session.

They traded to a low of $138.64 and a high of $144.87 before closing the day at $141.73, an increase of 1.96%.

The Shanghai-based e-commerce company’s ADSs have added more than 105% over the past six months.

While the 0% notes have long been a yield-to-put play with the notes putable on Dec. 1, the explosion in equity has returned them to balanced convertible notes.

Sources expect a substantial amount of the notes to remain outstanding after the Dec. 1 put and for the notes to once again trade on hedge.

However, the notes did not look very attractive even with a more balanced profile with a 0% coupon and about a 45% conversion premium.

“There are coupons now,” a source said.

Farfetch volatile

Farfetch’s 3.75% convertible notes due 2027 continued a wild ride in the secondary with the notes plunging on Wednesday after skyrocketing the previous session.

The 3.75% notes cratered 23 points outright on Wednesday after the company delayed the release of earnings.

The notes traded down to the 34.5 to 35 context, a source said.

There was $6 million in reported volume.

FarFetch stock traded to a high of $1.41 and a low of 92 cents before closing the day at 97 cents, a decrease of 53.74%.

While the convertible notes collapsed on Wednesday, they soared on Tuesday with the notes jumping from a 45-handle to 58 on market chatter the company was considering going private.

The notes trade on a heavy hedge, a source said, but market players have been whipsawed by the volatility.

Mentioned in this article:

Farfetch Ltd. NYSE: FTCH

PG&E Corp. NYSE: PCG

Pinduoduo Inc. Nasdaq: PDD

Weibo Corp. Nasdaq: WB

© 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.