Square regains ground in heavy volume amid mixed, holiday trading; Esperion models cheap

By Rebecca Melvin

New York, Nov. 11 – Square Inc. was in focus for a second day in the convertibles market on Wednesday, as convertible paper overall traded lightly mixed in decent volume during the Veterans Day holiday.

Square’s $1 billion of newly priced convertibles recouped losses sustained on their debut on Tuesday. The Square 0% convertibles due 2026 added back three points in heavy volume. The older Square convertibles – those with more equity sensitivity – were also trading a fair amount in action on Wednesday.

“You may see more of the equity-sensitive type names trading because there are more equity guys involved today with the Veterans Day holiday,” a market source said.

The bond markets were closed for the holiday while the equity markets remained open.

The new Liberty Media Corp. notes, which are exchangeable for Live Nation Entertainment Inc. common shares, were also trading. The 0.5% Liberty/Live Nation exchangeables due 2050 traded at 100.625 in strong volume.

Airlines were weaker in trade. Southwest Airlines Co.’s equity-sensitive 1.25% convertibles due 2025 traded lower with shares. The paper was off more than 2.5 points to 142.15, according to Trace data. The airlines’ common shares, which underlie the convertibles, settled $1.59, or 3.4%, lower at $43.22.

American Airlines Group Inc.’s 6.5% convertibles due 2025 fell 1.5 points to 97.22 in active trade. The bonds traded as low as 96.1 on the day. The airline’s common shares settled at their lows of the session, down 34 cents, or 2.8%, to $12.04.

Primary market

In the international primary market, Flight Centre Travel Group Ltd. priced A$400 million of 2.5% seven-year convertible notes at par with an initial conversion premium of 31% and Deutsche Lufthansa AG priced €600 million of five-year convertible bonds with a 2% coupon and a 40% initial conversion premium, according to company releases.

In the United States, Esperion Therapeutics Inc. was expected to price a $200 million offering of five-year convertible notes after the market close. The notes of the Ann Arbor, Mich.-based pharmaceutical company were seen as significantly cheap at talked terms, according to a market source.

Using a credit spread of 1,000 basis points over Libor and 45% vol., the bonds were seen more than 9 points cheap at 109.04 at the midpoint of price talk.

The bonds were being talked to yield 3.5% to 4% with an initial conversion premium of 20% to 25%.

The deal “models cheap, but the stock borrow must be tough. The short interest outstanding is 36%,” the market source said.

Morgan Stanley & Co. LLC is left lead of the Rule 144A deal with Jefferies & Co. also a bookrunner, and JMP Securities, Stifel, Nicolaus & Co. Inc., Needham and BTIG acting as co-managers.

Square improves in active trade

Square’s 0% convertibles due 2026 rebounded back over par to 101.7 with shares up at $182.30, which was up about 6% on the day. That was a gain of about three points.

Square’s new 0.25% convertible due 2027 added 2.5 points to just under par.

The two $500 million issues introduced to the market on Tuesday resulted in older Square issues being pulled into trade.

An older sister issue, the Square 0.5% convertibles due 2023 bounced back a bit on Wednesday, adding about 10 points in the early going after suffering a drop of nearly 26 points on Tuesday. The bonds were seen changing hands at 236.7, according to Trace data.

The Square common shares gained about 6% on Wednesday, after a 6% drop on Tuesday.

Square’s new long five-year convertible and seven-year convertible are both $500 million in size, and accounted for a good chunk of Wednesday’s trade.

Flight Centre, Lufthansa price

Autralian travel agency Flight Centre Travel Group priced A$400 million of 2.5% seven-year convertible notes at par with an initial conversion premium of 31%, according to a company release.

The company is also placing about 5.2 million ordinary shares concurrently with the pricing of notes to facilitate hedging. The clearing price was A$15.30 per share, which represented a discount of 2.5% to the closing price of the ordinary shares on Nov. 10. The initial conversion price is A$20.04.

Pricing came toward the rich end of 2.25% to 3% coupon talk and toward the cheap end of 30% to 35% talk for the premium.

The notes are callable and putable at par on Nov. 17, 2024.

Goldman Sachs and BofA Securities are joint bookrunners and joint lead managers of the Regulation S deal, which is expected to be listed on the Singapore Exchange Securities Trading Ltd.

The Lufthansa convertibles have an initial conversion price set at €12.96.

The company said that the transaction was more than six times oversubscribed.

Lufthansa is the flag carrier of Germany.

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