Morning Commentary: Virgin Galactic reopens primary, offers $425 million convertibles

By Abigail W. Adams

Portland, Me., Jan. 13 – The convertible bond primary market returned to action on Thursday with the first new deal of the year set to price after the market close.

Virgin Galactic Holdings Inc. plans to price $425 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 2% to 2.5% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The deal was heard to be in the market with assumptions of 600 basis points over Libor and a 45% vol. with a borrow of 1%, a source said.

Using those inputs, the deal looked 4.75 points cheap at the midpoint of talk.

However, other sources felt the company, which went public through a SPAC, deserved a wider credit spread.

Using a credit spread of 800 bps over Libor and a 45% vol., the deal looked 1.875 points cheap.

The company, which produces no revenue, is heavily shorted. However, assuming a normal borrow and using underwriters’ assumptions, the deal modeled 7.5 points cheap at the midpoint of talk.

“The borrow makes a huge difference, a source said.

Proceeds from the offering will help Virgin Galactic in the space race with the company contending for a piece of commercial space travel.

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