Novavax convertibles offering eyed, credit questioned; Airbnb active; Carnival lower

By Abigail W. Adams

Portland, Me., Dec. 15 – The convertibles primary market rolled out the sole offering of the week with Novavax Inc. planning to price $125 million of five-year convertible notes after the market close on Thursday.

The notes looked several points cheap. However, sources questioned the credit with “some hair” on the small offering.

The deal came to market on a brutal day for risk assets with equities deep-in-the-red as markets digested the latest Federal Reserve announcement.

The Dow Jones industrial average closed Thursday down 764 points, or 2.25%, the S&P 500 index down 2.49%, the Nasdaq Composite index down 3.23% and the Russell 2000 index down 2.64%.

The convertibles secondary space was “a little softer” amid the downturn in equities but there were no real disasters in the space, sources said.

Trading volumes were average with $442 million on the tape about one hour before the market close.

Airbnb Inc.’s 0% convertible notes due 2026 saw heavy volume on Thursday with the notes slightly weaker alongside stock.

Carnival Corp.’s 5.75% convertible notes due 2027 continued to weaken in the aftermarket with the notes falling to a new all-time low in heavy volume.

Novavax eyed

Novavax plans to price $125 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 4.75% to 5.25% and an initial conversion premium of 22.5% to 27.5%.

Sources had mixed opinions on the offering with the company a “hairy” credit but the cheapness of the deal and the drop in stock giving it large profit potential.

The deal was heard to be in the market with assumptions of a 900 basis points credit spread and a 45% vol., a source said.

Assuming a normal borrow, the deal modeled about 9.5 points cheap at the midpoint of talk, a source said.

However, assuming borrow costs of 1.5%, another source pegged the deal as 6.5 points cheap.

Concurrently with the convertible notes offering, the company is pricing a secondary offering of up to $125 million of common stock.

The concurrent offering will help alleviate borrow issues with the stock, a source said.

While the deal modeled cheap, some saw the credit as an issue.

The vaccine maker and Covid-era darling suffered the same downfall as other pandemic-era standouts with stock down more than 95% from its 52-week high as of Thursday’s close.

The company has $1.2 billion on its balance sheet; however, it has $325 million outstanding in 3.75% million convertible notes that come due on Feb. 1, 2023.

While proceeds are earmarked for the repayment of the 3.75% convertible notes, “it doesn’t even cover the full amount,” a source said.

The company has an additional looming payment of $112 million to the U.K. and a high cash burn rate, which makes an additional capital raise in a short period of time likely, a source said.

Given the cash burn rate, one source pegged the credit spread at 1,700 bps, which reduced the cheapness of the deal to 0.125 point at the midpoint of talk.

With a credit spread of 1,200 bps the deal looked about 5.5 points cheap.

While a hairy credit, the market was expressing little doubt in the company’s ability to pay off its 3.75% convertible notes at their maturity.

The notes were changing hands at 99.6 on Thursday, a source said.

Novavax’s stock traded to a high of $14.16 and a new 52-week low of $11.11 before closing the day at $11.32, a decrease of 34.3%.

Airbnb active

Airbnb’s 0% convertible notes due 2026 saw heavy volume on Thursday with the notes weaker alongside stock.

The 0% convertible notes were off about 0.5 point with stock down more than 3%.

The notes fell to an 83-handle.

They were changing hands at 83.375 heading into the market close with the yield about 5.5%, according to a market source.

There was $11.5 million in reported volume.

Airbnb’s stock traded to a high of $92.71 and a low of $89.52 before closing the day at $90.61, a decrease of 3.53%.

Carnival’s new low

Carnival’s 5.75% convertible notes due 2027 continued to weaken in secondary market activity with the notes hitting their lowest level on Thursday since pricing.

The 5.75% notes dropped 2 points outright with stock off more than 3%.

They were trading just shy of 94 heading into the market close.

The level marked the lowest for the notes since the $1 billion issue hit the secondary space on Nov. 16.

There was $10 million in reported volume.

Carnival’s stock traded to a low of $8.47 and a high of $8.95 before closing the day at $8.63, a decrease of 3.25%.

Mentioned in this article:

Airbnb Inc. Nasdaq: ABNB

Carnival Corp. NYSE: CCL

Novavax Inc. Nasdaq: NVAX

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