Desktop Metal downsizes, widens talk; Upstart Holdings craters; Affirm under pressure

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 an offering of five-year convertible notes after the market close on Tuesday.

The deal was heard to be struggling during bookbuilding with the deal size downsizing and talk widening.

The deal was optically attractive and modeled several points cheap using underwriters’ assumptions.

However, the company was fundamentally weak with the deal akin to rescue financing, a source said.

Meanwhile, equity markets were choppy on Wednesday with a strong open giving way to selling pressure.

Indexes again wavered between large gains and losses before closing the day mixed.

The Dow Jones industrial average closed Tuesday down 85 points, or 0.26%, the S&P 500 index closed up 0.25%, the Nasdaq Composite index closed up 0.98% and the Russell 2000 index closed down 0.14%.

While equities attempted a comeback on Tuesday, there was more pain in the convertibles secondary space as double digit drops continued in the equity of convertibles issuers.

Upstart Holdings Inc.’s 0.25% convertible notes due 2026 cratered in high-volume activity with the notes contracting double digits as stock got cut in half following earnings.

Upstart’s results dragged down its industry peers with Affirm Holdings Inc.’s 0% convertible notes due 2026 also taking a hit as the market braced for Affirm’s earnings on Thursday.

Desktop Metal widens talk

Desktop Metal’s planned offering of five-year convertible notes was heard to be struggling during bookbuilding with the deal downsizing and price talk widening.

The 3D metal printing company now plans to price a downsized $100 million, from $150 million, offering of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 6% and an initial conversion premium of 25%, according to a market source.

Initial talk was for a coupon of 5% to 5.5% and an initial conversion premium of 30% to 35%.

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 and was 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 initial talk using underwriters’ assumptions, a source said.

The deal looked cheap, “but it has to be,” a source said.

Desktop Metal’s stock closed Tuesday at $1.33, a decrease of 61.11%. The 3D metal printing company closed Tuesday with a market cap of $416.61 million.

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

Smart investors “got suckered” with SPACs, which seemed to offer a cheap entry point for companies with strong growth potential at the height of their popularity in 2021.

However, like most SPACs, Desktop Metal has been on a strong downtrend throughout the year and set a new 52-week low of $1.26 on Tuesday.

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

However, the company did have interesting equity investors that appeared to be in it for the long haul.

And the pricing of the convertible notes did make the deal look interesting, a source said.

Upstart tanks

Upstart Holdings’ 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.

They traded as low as a 59-handle in intraday activity and were changing hands at 60.375 in the late afternoon.

The yield on the notes jumped to 12.5%.

The 0.25% notes contracted 10 points dollar-neutral, a source said.

Upstart’s stock traded to a high of $38.47 and a low of $29.02 before closing the day at $33.61, a decrease of 56.42%.

Stock cratered after the AI lending platform released earnings.

The company beat expectations with earnings per share of 61 cents versus analyst expectations for earnings of 53 cents.

Revenue was $310.14 million versus analyst expectations for revenue of $300.13 million.

However, the company’s forward guidance came in below expectations.

Upstart expects second-quarter revenue between $295 million and $305 million and full-year revenue of $1.25 billion.

Expectations were for second-quarter revenue of $334.8 million and full-year revenue of $1.4 billion.

Affirm in focus

Upstart’s earnings results dragged down its industry peers with Affirm’s 0% convertible notes due 2026 lower on an outright and dollar-neutral basis.

Affirm’s 0% convertible notes fell 4 points outright with stock off more than 10%.

They were changing hands at 56.25 heading into the market close.

The notes contracted 2.5 to 3 points dollar-neutral on the move down, a source said.

Affirm’s stock traded to a low of $16.56 and a high of $20.64 before closing the day at $18.19, a decrease of 11.66%.

Affirm is scheduled to report earnings on Thursday.

Mentioned in this article:

Affirm Holdings Inc. Nasdaq: AFRM

Desktop Metal Inc. NYSE: DM

Upstart Holdings Inc. Nasdaq: UPST

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