Progenity, Shift4 convertibles price; Shift4 skyrockets on debut; Splunk tanks outright

By Abigail W. Adams

Portland, Me., Dec. 3 – The convertibles primary market cleared the forward calendar with two deals pricing, bringing the weekly tally to $1.725 billion over four deals.

Shift4 Payments Inc. priced an upsized $600 million offering of five-year convertible notes and Progenity Inc. priced $75 million of five-year convertible notes after the market close on Wednesday.

The new paper from Shift4 skyrocketed on its aftermarket debut on Thursday.

Shift4’s deal became the latest to price with a 0% coupon, a growing trend in the convertibles universe.

The practice of pricing with a 0% coupon was common although controversial in the convertibles universe back in the early 2000s.

There has been a resurgence of the convertibles once referred to as “No-Nos,” in the second half of 2020.

Meanwhile, the secondary space was extremely active as convertible issuers saw huge movements in their underlying equity.

There was $200 million in reported volume less than one hour into the session and more than $1 billion in reported volume heading into the market close, sources said.

Outside of the new paper, Splunk Inc.’s convertible notes were in focus and tanked outright but expanded dollar-neutral as stock got pummeled following its third-quarter earnings report.

Shift4 in demand

Shift4 Payments priced an upsized $600 million offering of five-year convertible notes after the market close on Wednesday at par with a coupon of 0% and an initial conversion premium of 45%.

Pricing came at the rich end of revised price talk for a coupon of 0% to 0.25% and an initial conversion premium of 42.5% to 45%, according to a market source.

Initial price talk was for a coupon of 0.25% to 0.75% and an initial conversion premium of 37.5% to 42.5%.

Concurrently with the convertible notes offering, certain stockholders sold 8 million shares in a public offering at a price of $55.50 a share.

The public offering carries a greenshoe of 1.2 million shares.

The new paper from Shift4 skyrocketed on debut.

The 0% notes traded as high as 107 on an outright basis early in the session, a source said.

They closed the day at 106.687 bid, 107.1875 offered versus a stock price of $59.97, another source said.

The 0% notes expanded 3.5 points on a dollar-neutral, or hedged, basis.

There was more than $20 million in reported volume heading into the market close.

Shift4’s stock traded to a high of $61 and a low of $57.46 before closing the day at $59.97, an increase of 7.09%.

The No-No

Shift4 became the latest offering to price at par with a 0% coupon, a growing trend in the convertibles universe.

Of the four deals to price over the past week, three carried 0% coupons, although one priced at a discount rendering a nominal yield.

Of the almost 10 tranches that priced in November, five carried 0% coupons.

Year to date, there have been 23 deals totaling $11.862 billion that have priced with 0% coupons, according to Prospect News data – the majority coming in the second half of the year.

In the third quarter there were seven deals totaling $3.358 billion, and, so far, in the fourth quarter there have been eight deals totaling $6.634 that priced with 0% coupons.

The practice of issuing 0% convertible bonds at par was common in the late 1990s and early 2000s.

“They were nicknamed ‘No-Nos,’ in recognition that they had both zero coupons and zero original issue discounts,” a source said. “The concept was controversial at the time.”

While the majority of deals to price recently with a 0% coupon have performed well, several sources have pointed to the growing trend as a potential liability for the convertibles market.

Progenity prices

Progenity priced $75 million of five-year convertible notes after the market close on Wednesday at the cheap end of talk with a coupon of 7.25% and an initial conversion premium of 10%.

Price talk was for a coupon of 6.75% to 7.25% and an initial conversion premium of 10% to 15%.

The company priced a concurrent secondary offering of 7,645,259 shares at a public offering price of $3.27.

The secondary offering carries a greenshoe of 1,146,788 shares.

The small offering was wall-crossed and was not active in the secondary space.

Splunk tanks

Splunk’s convertible notes were in focus and tanking on an outright basis but expanding dollar-neutral as stock got pummeled following its earnings report.

Splunk’s 1.125% convertible notes due 2027 dropped 11 points outright.

The notes were changing hands at 102.25 versus a stock price of $159.33 in the late afternoon.

There was more than $41 million on the tape.

The software company’s 1.125% convertible notes due 2025 dropped 22 points outright to 130.625.

The 0.5% convertible notes due 2023 dropped 21 points to 127.

Both tranches saw more than $25 million in reported volume.

While the notes tanked on an outright basis, they were expanding on the move down, a source said.

Splunk’s stock traded to a high of $169 and a low of $152.52 before closing the day at $158.03, a decrease of 23.25%.

Stock tanked after the company missed analyst expectations on both the top and the bottom lines.

The company reported revenue of $559 million versus the $613 million analysts expected.

The company also reported a loss per share of 7 cents versus analyst expectations for earnings per share of 9 cents.

Mentioned in this article:

Progenity Inc. Nasdaq: PROG

Shift4 Payments Inc. NYSE: FOUR

Splunk Inc. Nasdaq: SPLK

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