Morning Commentary: Desktop Metal convertibles on tap; Upstart Holdings trades lower

By Abigail W. Adams

Portland, Me., May 10 – The convertibles primary market announced a new offering on Tuesday, although the deal on deck was not the quality paper many had hoped for.

Desktop Metal Inc. plans to price $150 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 5% to 5.5% and an initial conversion premium of 30% to 35%, according to a market source.

The deal was being marketed with assumptions of 900 basis points over Libor and a 40% vol., according to a market source.

The borrow on the stock was difficult heading into Tuesday’s session but is expected to become worse with the company’s stock tanking on the heels of the new offering and following earnings.

Assuming a borrow cost of 1.5%, the deal looked 3.5 points cheap at the midpoint of talk using underwriters’ assumptions, a source said.

Desktop Metal’s stock was changing hands at $2.16, a decrease of 36.84%, shortly before 11 a.m. ET.

The company went public through a SPAC in 2020 with stock running as high as $32 in February 2021 when SPACs were in vogue.

However, the company has been on a strong downtrend and set a new 52-week low on Tuesday.

The proposed offering was most likely a sign of desperation from the company.

Meanwhile, equity markets saw a strong open on Tuesday as the 10-year Treasury yield fell below a 3% yield.

However, the rally quickly waned with indexes mixed shortly before 11 a.m. ET.

The Dow Jones industrial average was down 38 points, or 0.13%, the S&P 500 index was down 0.02%, the Nasdaq Composite index was up 0.08% and the Russell 2000 index was down 0.29%.

“They’re selling into the rally,” a source said.

The secondary space was active early Tuesday with the latest earning disappointment dominating the tape.

Upstart Holdings Inc.’s 0.25% convertible notes due 2026 were the name of the day with the notes hitting a new outright low with stock more than cut in half following earnings.

The high-premium notes fell 6 points outright with stock off 60%.

The notes were changing hands at 61 versus an equity price of $33.65 early in the session.

There was $24 million in reported volume.

Upstart’s stock was trading at $30.09, a decrease of 60.99%, shortly before 11 a.m. ET.

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