Xerox convertibles struggle on debut; Avid Bioservices prices overnight; Tandem surges

By Abigail W. Adams

Portland, Me., March 7 – The convertibles primary market appeared closed for the week with no further deals announced on Thursday after two priced post-close the previous session.

While the March 3 week stands out as a historic week for issuance with March 5 in the running for the heaviest volume day for new deal activity in more than a decade, the market showed few signs of indigestion with Xerox Holdings Corp.’s offering of six-year convertible notes (B1/BB) upsizing and pricing through initial talk.

While an outlier to the deluge of deals over the past week, Avid Bioservices Inc. sold $160 million of 7% convertible senior notes due 2029 in an overnight offering.

The deal had a limited audience and was done due to necessity after the company got hit with an acceleration notice.

Meanwhile, the secondary space remained active with the deluge of new paper driving activity on a strong day for markets.

The Dow Jones industrial average closed Thursday up 130 points, or 0.34%, the S&P 500 index closed up 1.03%, the Nasdaq Composite index closed up 1.51% and the Russell 2000 index closed up 0.81%.

There was $134 million in reported convertible bond trading volume about one hour into the session and $1.19 billion on the tape by the market’s close with Xerox’s new notes in focus.

While Xerox saw strong demand during book building, the notes saw a lackluster start in the aftermarket with the notes closing the day below par and contracted dollar-neutral.

While several recent deals leveled off in the aftermarket, Tandem Diabetes Care Inc.’s 1.5% convertible notes due 2029 surged alongside stock.

Avid’s overnighter

In an overnight offering, Avid Bioservices sold $160 million of 7% convertible senior notes due 2029 after the market close on Wednesday with an initial conversion price of 12.5%.

Proceeds were designated for the repurchase of a portion of the 1.25% exchangeable notes due 2026 in privately negotiated transactions and to repay in full any outstanding amounts after the repurchases.

The deal played to a limited audience and was done out of necessity after the company got hit with an acceleration notice for the 1.25% exchangeable notes.

A holder of more than 25% of the outstanding amount of the 1.25% notes declared the full outstanding amount and unpaid interest to be due immediately due to an event of default.

The acceleration notice stated the company did not remove a restrictive legend on the 1.25% notes as required by March 17, 2022 making the notes subject to an additional interest rate of 0.5%.

The company did not pay the additional interest, creating a default event, according to an 8-K filing with the Securities and Exchange Commission.

The acceleration event on the exchangeable notes triggered a cross-default under the company’s credit agreement with the Bank of America, NA.

Holders of the 1.25% notes made out on their redemption with the notes shooting up to 101.

They last traded at 89 at the end of February, according to Trace.

Hedge players gained 13 points, a source said.

Avid’s stock traded to a low of $5.90 and a high of $6.61 before closing at $6.10, a decrease of 30.60%.

Xerox struggles

Xerox priced an upsized $350 million of six-year convertible notes (B1/BB) after the market close on Wednesday at par with a coupon of 3.75% and an initial conversion premium of 25%.

Pricing came tighter than the rich end of initial talk for a coupon of 4% to 4.5% and an initial conversion premium of 17.5% to 22.5%, according to a market source.

While the new paper traded up early, it lost steam as the session progressed.

The new 3.75% convertible notes were seen wrapped around 101 versus a stock price of $17.06 about one hour after the opening bell, according to a market source.

They were trading at par versus a stock price of $16.90 in the late afternoon.

The notes continued their downtrend and closed at 99.375.

They contracted about 0.5 point dollar-neutral.

There was $94 million in reported volume.

Xerox’s stock traded to a low of $16.54 and a high of $17.24 before closing at $16.76, up 0.54%.

Tandem surges

Tandem’s new 1.5% convertible notes due 2029 continued to surge higher as stock saw more upside momentum.

The 1.5% notes shot up another 6 points outright as stock jumped 10%.

They were trading at 110 versus a stock price of $30.11 in the late afternoon, according to a market source.

They continued to add dollar-neutral.

Tandem’s stock traded to a low of $27.14 and a high of $30.31 before closing at $29.67, up 9.6%.

The notes made strong gains on debut on Wednesday and expanded 3 points dollar-neutral.

Mentioned in this article:

Avid Bioservices Inc. Nasdaq: CDMO

Tandem Diabetes Care Inc. Nasdaq: TNDM

Xerox Holdings Corp. Nasdaq: XRX

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