Stem convertibles volatile outright, expand on swap; Oak Street up ahead of acquisition

By Abigail W. Adams

Portland, Me., March 30 – It was an active day in the convertibles secondary space with new paper, topical news and an improved market tone jumpstarting activity in the market.

In the sole new offering of the week, Stem Inc. priced an upsized $200 million of seven-year green convertible notes after the market close on Wednesday.

The new paper hit the secondary space on a mixed day for equities with indexes launching the session strong but closing mixed with the Dow Jones industrial average up 141 points, or 0.43%, the S&P 500 index up 0.57%, the Nasdaq Composite index up 0.73% and the Russell 2000 index down 0.18%.

Stem’s new 4.25% convertible notes due 2030 were volatile outright and closed the day below par; however, the notes maintained a solid dollar-neutral expansion.

While Stem’s new notes were active, it was Oak Street Health Inc.’s 0% convertible notes due 2026 that dominated the tape on Thursday.

The notes made large gains on updated timing for the closing of CVS’s $10.6 billion acquisition of the company.

Oak Street’s and Stem’s convertible notes accounted for nearly one-third of the $526 million on the tape about one hour before the market close.

However, several names were active with outright accounts continuing to put money to work in the market, a source said.

onsemi’s 0.5% convertible notes due 2029 continued their upward momentum with the notes hitting a new outright high after breaking below par earlier in the week.

Stem expands

Stem priced an upsized $200 million of seven-year green convertible notes after the market close on Wednesday at par at the cheap end of talk with a coupon of 4.25% and an initial conversion premium of 27.5%.

Price talk was for a coupon of 3.75% to 4.25% and an initial conversion premium of 27.5% to 32.5%.

The greenshoe was also upsized to $40 million.

The initial size of the offering was $175 million with a greenshoe of $35 million.

The new paper was making nominal outright gains in early trade.

They were changing hands at 100.25 versus a stock price of $5.725 about one hour into the session.

However, the notes sank below par as stock turned negative as the session progressed.

They were changing hands at 99.25 versus a stock price of $5.55 in the late afternoon.

The notes expanded 0.375 point to 0.5 point dollar-neutral, a source said.

There was $47 million in reported volume.

Stem’s stock traded to a low of $5.47 and a high of $5.85 before closing at $5.50, a decrease of 1.43%.

The deal came as a refinancing with $99.8 million of net proceeds used to repurchase $163 million in principal of the company’s 0.5% green convertible notes due 2028.

The 0.5% notes were repurchased at 61.038, about 4 points above their previous trading level, a source said.

Oak Street acquisition

Oak Street’s 0% convertible notes due 2026 made large gains in heavy volume on Thursday on updated timing for the closing of CVS’s acquisition of the company.

The 0% convertible notes jumped 5 points outright to a 98-handle on the news.

They were changing hands in the 98.5 to 98.75 context throughout the session.

They gained about 3 points dollar-neutral, a source said.

There was $70 million in reported volume.

Oak Street’s stock closed Thursday at $38.70, an increase of 4.57%.

The notes have traded on a 93-handle for much of March as market players awaited updates on the closing of CVS’s $10.6 billion all-cash acquisition of the primary health care provider.

The notes bounced after the deal cleared the anti-trust waiting period, a key regulatory hurdle, with no objections from the government.

CVS announced it expects the deal to close in the first half of 2023.

Market players anticipate the deal will close by the end of April.

The 0% convertible notes will be taken out at par when the deal is complete.

onsemi gains

onsemi’s 0.5% convertible notes due 2029 continued their upward momentum in active trading with the notes hitting a new outright high.

The 0.5% convertibles traded up to a 104-handle as stock added to its strong gains from the previous session.

The notes were seen at 104.375 versus a stock price of $81.83 in the late afternoon, according to a market source.

There was $21 million in reported volume.

onsemi’s stock traded to a low of $80.57 and a high of $82.52 before closing the day at $81.83, an increase of 2.45%.

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

However, positive earnings from Micron sparked a sector-wide rebound over the past two sessions.

Mentioned in this article:

Oak Street Health Inc. NYSE: OSH

onsemi Nasdaq: ON

Stem Inc. NYSE: STEM

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