Slack convertible offering eyed; Carnival in focus; Wayfair jumps outright

By Abigail W. Adams

Portland, Me., April 6 – The convertible primary market seized on the improving tone of the market on Monday and launched two deals.

In an overnight deal, Slack Technologies Inc. plans to price $600 million in five-year convertible notes after the market close on Monday.

The deal looked cheap based on underwriters’ assumptions, sources said.

Chimera Investment Corp. plans to price $250 million in three-year convertible notes after the market close on Tuesday with price talk for a coupon of 6% to 7% and an initial conversion premium of 0%, according to a market source.

Credit Suisse Securities (USA) LLC is sole bookrunner for the registered offering, which carries a greenshoe of $37.5 million.

Meanwhile, volume was relatively light in the secondary space as equity markets surged on optimism the coronavirus pandemic has peaked.

There was $51 million in reported volume a little over one hour into Monday’s session and $300 million in reported volume about one hour before the market close.

Carnival Corp.’s recently priced 5.75% convertible notes due 2023 continued to dominate activity in the secondary space.

The notes, which have been volatile since pricing, were making gains on an outright and dollar-neutral basis on Monday.

Wayfair Inc.’s convertible notes were also active and making large gains on an outright basis as stock surged on the heels of upbeat guidance and the private placement of convertible notes.

Slack eyed

Slack Technologies plans to price $600 million in five-year convertible notes after the market close on Monday with price talk for a coupon of 0.5% to 1% and an initial conversion premium of 25% to 30%.

The deal is being marketed with assumptions of 500 basis points over Libor and a 40% vol., according to a market source.

Using those assumptions, the deal modeled a little more than 4.125 points cheap at the midpoint of talk, a source said.

Another source also pegged the offering about 4 points cheap at the midpoint of talk.

However, some sources felt underwriters were being conservative with their credit assumption and the company deserved a tighter spread.

The San Francisco-based business communication software company facilitates remote work.

The coronavirus pandemic has taken a bite out of the economy and the bottom lines of companies from several industries.

However, it has bolstered communication software companies such as Slack as the pandemic and social distancing guidelines pushes more employees to work remotely.

Slack stock has held up relatively well amid the coronavirus-induced sell-off in March.

Carnival in focus

Carnival’s recently priced 5.75% convertible notes due 2023 were in focus on Monday with the notes making large gains on both an outright and dollar-neutral basis.

Carnival’s 5.75% notes jumped more than 15 points outright.

They traded as high as 120 but were changing hands at 118 in the late afternoon with stock up more than 20%.

With more than $69 million in reported volume during Monday’s session, the notes dominated activity in the secondary space.

Carnival stock also skyrocketed on Monday following news that Saudi Arabia’s public investment fund had taken a minority stake in the company.

Stock traded to a high of $10.96 and a low of $9.14 before closing the day at $10.21, an increase of 20.26%.

Carnival’s convertible notes have been extremely volatile since they priced.

The 5.75% notes fluctuated between 98 and 105 on an outright basis and expanded as much as 2 points dollar-neutral only to end the day flat on their market debut last Thursday.

The notes were again volatile last Friday trading in a range of 99.25 to 103.75 on an outright basis and contracting as much as 1.5 points dollar-neutral.

Wayfair surges

Wayfair’s convertible notes were also active and making large gains on an outright basis with the stock one of the major gainers of Monday’s session.

The Boston-based home goods e-commerce company’s 0.375% convertible notes due 2022 jumped more than 13 points outright.

They were changing hands at 89.5 in the late afternoon with more than $11.5 million in reported volume.

Wayfair’s 1% convertible notes due 2026 gained 10 points outright to trade just shy of 70 in the late afternoon.

The 1% notes saw about $7 million in reported volume during Monday’s session.

Wayfair stock traded to a low of $64.18 and a high of $76.47 before closing the day at $71.50, an increase of 41.22%.

Stock surged after the company announced that it would meet or exceed its first quarter guidance for 15% to 17% net revenue growth and non-GAAP EBITDA.

In addition, Wayfair announced that it had privately placed $535 million in five-year convertible notes to improve its liquidity.

The convertible notes were priced with a coupon of 2.5% and an initial conversion premium of 46% over the average closing price of stock over the last 30 days, according to a company news release.

The notes were placed with private equity firms Great Hill Partners and Charlesbank Capital Partners with Spruce House Partnership, one of Wayfair’s largest shareholders, also participating.

Mentioned in this article:

Carnival Corp. NYSE: CCL

Chimera Investment Corp. NYSE: CIM

Slack Technologies Inc. NYSE: WORK

Wayfair Inc. NYSE: W

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