Stem convertible notes reopen primary; opinions mixed; onsemi rebounds; DISH active

By Abigail W. Adams

Portland, Me., March 29 – The convertibles primary market broke its silence after more than one week with no issuance with a new offering on deck.

Stem Inc. plans to price $175 million of seven-year green convertible notes after the market close on Wednesday.

While the offering modeled cheap based on underwriters’ assumptions, its real value will be in the buyback of its outstanding 0.5% convertible notes due 2028, sources said.

However, opinions on the offering varied with the distressed trading level of its outstanding 0.5% convertible notes making the new offering less attractive, sources said.

The new deal launched on a strong day for equities with positive earnings boosting market sentiment ahead of a heavy slate of macro data.

The Dow Jones industrial average closed Wednesday up 323 points, or 1%, the S&P 500 index closed up 1.42%, the Nasdaq Composite index closed up 1.79% and the Russell 2000 index closed up 1.07%.

While the market tone improved, the convertibles secondary space remained quiet with $67 million in reported volume about one hour into the session and $353 million on the tape about one hour before the market close.

onsemi’s 0.5% convertible notes due 2029 were on the rebound with the notes returning to a 101-handle after breaking below par the previous session.

DISH Network Corp.’s convertible notes (B3/CCC) were largely unchanged in heavy volume with the notes attracting a wide range of crossover investors.

Stem eyed

Stem plans to price $175 million of seven-year green convertible notes after the market close on Wednesday with price talk for a coupon of 3.75% to 4.25% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of 1,000 basis points over SOFR and a 45% vol., according to a market source.

Using those assumptions, sources pegged the offering 0.75 point cheap to 1.5 points cheap at the midpoint of talk.

The deal is coming as a refinancing with proceeds to be used to repurchase a portion of the company’s 0.5% green convertible notes due 2028 in privately negotiated transactions.

The value in the offering was most likely in the repurchase of the 0.5% notes, which have been trading on a 57-handle, a source said.

The 0.5% notes traded up to 61.

The 0.5% notes currently have $460 million outstanding.

The timing of the refinancing was a “little head scratching,” with the maturity of the 0.5% notes still five years out, a source said.

While holders involved in the buyback stood to gain from the transaction, more than half of the 0.5% notes will remain outstanding.

The depressed price of the 0.5% notes made Stem’s new offering less attractive with the outstanding notes carrying a yield to maturity of about 10.67%.

“This is a pure vol. play,” a source said. “No one would buy it for the coupon.”

The new deal will mostly appeal to hedge funds.

However, outright accounts may be interested in the notes for the “barbell effect,” a source said.

While the 0.5% notes are trading at their bond floor, the new notes will allow some participation in any equity upside – a strategy one source called a “barbell” investment.

The top three holders of the 0.5% convertible notes are outright accounts.

While sources were unenthusiastic about the offering, the deal was covered with books closing in the early afternoon.

The notes are believed to be coming at the mid or cheap end of talk.

Issuing new convertible notes on top of outstanding notes that are trading at distressed levels is not an easy feat, a source said.

It will be interesting to see if the offering “becomes a new playbook,” a source said.

onsemi rebounds

onsemi’s 0.5% convertible notes due 2029 were on the rebound on Wednesday after breaking below par the previous session.

The 0.5% notes gained 1.5 points outright with the notes returning to a 101-handle.

The notes were changing hands at 101.625 versus a stock price of $77.87 early in the session, according to a market source.

They were seen in the 101.5 to 101.75 context in the late afternoon.

There was $12.5 million in reported volume.

onsemi’s stock traded to a low of $77.18 and a high of $80.69 before closing at $79.87, an increase of 4.36%.

The 0.5% notes dropped below par on Tuesday with stock under pressure alongside the broader semiconductor sector.

However, positive earnings from Micron Technology Inc. sparked a rebound in the sector on Wednesday.

DISH active

DISH’s convertible notes continued to see heavy volume on Wednesday with the notes continuing to hover around their all-time lows.

DISH’s 0% convertible notes due 2025 were trading at 51.5 versus a stock price of $8.99 in the late afternoon, according to a market source.

There was $11 million in reported volume.

DISH’s 3.375% convertible notes due 2026 were trading around 48.75.

While the 3.375% notes may have improved slightly outright, they were weaker dollar-neutral, a source said.

There was $10 million in reported volume.

DISH’s soon-to-mature 2.375% convertible notes due March 15, 2024 climbed 1 point to 87 with the yield now 17.75%.

DISH’s stock traded to a low of $8.73 and a high of $9.20 before closing at $9.10, an increase of 4.84%.

DISH’s capital structure has been under pressure since late February when the company revealed a ransomware attack was responsible for widespread outages, which the company is still grappling with.

The attack is expected to result in a significant loss of subscribers, which will take a toll on the company’s fundamentals.

The market largely expects DISH to restructure to meet its looming maturities with the $1 billion issue of the 2.375% convertible notes the first in the debt stack to come due.

DISH’s convertible notes have attracted a range of crossover investors as they fallen further into distressed territory.

Mentioned in this article:

DISH Network Corp. Nasdaq: DISH

onsemi Nasdaq: ON

Stem Inc. NYSE: STEM

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