Expedia talks $825 million 0% five-year convertibles; MicroStrategy notes on tap

By Rebecca Melvin

New York, Feb. 16 – The convertibles market started the holiday shortened week on Tuesday with two new deals in the offing, with one for Expedia Group Inc. and a second for MicroStrategy Inc.

U.S. financial markets were closed on Monday in observance of Presidents Day.

Expedia announced early Tuesday that it was planning to price $825 million of five-year convertible notes with a fixed 0% coupon and a 57.5% to 62.5% initial conversion premium, according to a company news release and market sources. Later the initial conversion premium talk was tightened to 65% to 70%.

The notes are non-callable for three years and thereafter callable with a make-whole payment at 130% of the conversion price.

There are no puts except a takeover protection put, and there is standard dividend protection.

The Bellevue, Wash.-based online travel company is also pricing an offering of senior notes, and it has also issued a conditional notice of redemption for all of its outstanding 7% notes due 2025, of which there is $750 million outstanding. The notes will be redeemed at par on March 3.

Meanwhile, MicroStrategy said it is planning to offer $600 million of convertible senior notes due 2027 in a private offering. The deal has a $90 million greenshoe.

Proceeds of the notes will be used to acquire additional Bitcoin.

The company issued $650 million of convertible debt in December with the proceeds used to purchase Bitcoin also.

The business intelligence and analytics company is based in Tysons Corner, Va.

Back in established issues, iQIYI Inc.’s 2% convertibles due 2025 swung around on Tuesday from a high of 118.982 to a low of 105.821 after notching a high mark on Friday of 110.875.

The company priced $1.2 billion of the 2% notes in March 2019 when the underlying shares closed at $22.87 on March 26. The iQIYI American Depositary Receipts closed at $25.11 on Tuesday, which was down $1.25 or 5.1% on the day.

iQIYI’a sister $800 million of 4% notes due 2026 priced on Dec. 16, 2020 when a concurrent offering of stock sold at $17.50 per share.

The issuer is a Beijing-based provider of entertainment services.

Expedia revises terms

The price talk for Expedia was revised during marketing, with the initial conversion premium boosted to 65% to 70% from earlier talk of an initial conversion premium of 57.5% to 62.5%. The $825 million base deal has a $100 million greenshoe.

Expedia shares closed up 0.9% to $147.84.

MicroStrategy eyed

The MicroStrategy deal was getting a look on Tuesday as convertible players eyed the second offering from this company in so many months. It was seen modeling at just about fair value, or 99.84, using a credit spread of 350 basis points over Libor and 45% volatility, according to a market source.

MicroStrategy’s shares fell $79.31, or 7.8%, to $955.00 on Tuesday.

The existing MicroStrategy bonds, which priced in December, have surged to the neighborhood of triple par while the underlying shares have also gained. On Dec. 15, the closing share price of MicroStrategy was $285.79.

Both deals appeared to be getting a positive reception in the market. The convertibles primary market was light last week, but it did enjoy an outsized $1 billion sale of five-year notes from Peloton Interactive Inc. The Peloton 0% coupon paper surged in the aftermarket, changing hands at 108 versus a stock price of $146.25 on Thursday, according to Prospect News.

Mentioned in this article:

Expedia Inc. Nasdaq: EXPE

iQIYI Inc. Nasdaq: IQ

MicroStrategy Inc. Nasdaq: MSTR

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