Spotify exchangeables eyed; $2.1 billion of notes flood secondary on weak day for stocks

By Abigail W. Adams

Portland, Me., Feb. 25 – It was a brutal day in the convertibles secondary space as the sell-off in equities accelerated with rising Treasury yields rattling investors’ appetite for risk assets.

“The bond market is killing all the high-flyers,” a source said.

The long-feared pullback in equities that would pressure the plethora of ‘No-Nos,’ convertible bonds with 0% yields that have populated the convertibles universe recently, seemed to be coming to fruition.

The secondary space was down 0.25 to 0.5 point dollar-neutral on Thursday, the source said.

However, the convertibles primary market still had one large $1.3 billion offering on deck, which was marketed as a ‘No-No.’

Spotify Technology SA plans to price $1.3 billion of five-year notes exchangeable for Spotify USA Inc. stock after the market close on Thursday.

The pricing was aggressive and the offering modeled rich based on underwriters’ assumptions, sources said.

However, demand for the offering remained strong with the deal expected to price within its initial terms.

Meanwhile, $2.1 billion in new paper entered the secondary space after a flurry of deals priced post-close on Wednesday.

In overnight offerings, Green Plains Inc. priced an upsized $200 million of six-year convertible notes and Chefs’ Warehouse Inc. sold a $50 million tap of its 1.875% convertible notes due 2024.

Enphase Energy Inc. priced an upsized $1.15 billion of convertible notes in five- and seven-year tranches and Halozyme Therapeutics Inc. sold an upsized $700 million of six-year convertible notes after the market close on Wednesday.

While Green Plains’ new convertible notes were performing well, Enphase’s two tranches of convertible notes and new paper from Halozyme were both trading well below par.

While Halozyme’s convertible notes were unchanged to expanded dollar-neutral, Enphase’s two tranches of convertible notes contracted on the move down.

Spotify eyed

Spotify Technology plans to price $1.3 billion of five-year notes exchangeable for Spotify USA stock after the market close on Thursday with price talk for a fixed coupon of 0% and an initial exchange premium of 65% to 75%.

The deal was heard to be in the market with assumptions of 175 basis points over Libor and a 45% vol., according to a market source.

Using those assumptions, the fair value of the deal modeled out to 99.58 at the midpoint of talk, a source said.

Despite the aggressive terms, demand for the notes remained strong.

The high-growth tech stock has name recognition and is an international company which international accounts love, a source said.

The deal is believed to be pricing at the midpoint of its conversion premium range, another source said.

With Spotify’s stock “walloped” on Thursday, the deal is expected to do well in the aftermarket, the source said.

Spotify’s stock closed Thursday at $303.06, a decrease of 9.47%.

Overnight

Green Plains priced an upsized $200 million, from $150 million, of six-year convertible notes after the market close on Wednesday at par at the midpoint of talk with a coupon of 2.25% and an initial conversion premium of 37.5%.

Price talk was for a coupon of 2% to 2.5% and an initial conversion premium of 35% to 40%, according to a market source.

The offering priced concurrently with a secondary offering of 7.61 million shares, which priced with a reoffer price of $23.00.

The new paper skyrocketed out of the gate and were changing hands at 105 about one hour after the opening bell.

Green Plains’ stock traded to a high of $25.00 and a low of $23.24 before closing the day at $24.22, a decrease of 6.99%.

Chefs’ Warehouse sold a $50 million tap of its 1.875% convertible notes due 2024 with a reoffer price of 103.5 and an initial conversion price of 32.3%.

Pricing came at the midpoint of talk for a reoffer price of 103 to 104, according to a market source.

Enphase contracts

Enphase Energy sold an upsized $1.15 billion of convertible notes in five- and seven-year tranches after the market close on Wednesday.

The deal consists of an upsized $575 million tranche of five-year notes, which priced at par with a coupon of 0% and an initial conversion premium of 70%.

Pricing came at the rich end of initial talk for a coupon of 0% to 0.25% and richer than initial talk for an initial conversion premium of 60% to 65%, according to a market source.

The deal also consists of an upsized $575 million tranche of seven-year notes, which priced at par with a coupon of 0% and an initial conversion premium of 57.5%.

Pricing came at the rich end of initial talk for a coupon of 0% to 0.5% and richer than initial talk for an initial conversion of 50% to 55%.

Concurrently, the company entered into privately negotiated transactions to repurchase $25,546,000 of the principal amount of its 1% convertible notes due 2024 and $217.74 million of the principal amount of its 0.25% convertible notes due 2025.

The 1% notes were repurchased for $25,546,000 in cash and 1,105,199 shares; the 0.25% notes were repurchased for $217.74 million in cash and 1,673,532 shares.

Both tranches sank on an outright and dollar-neutral basis.

The 0% convertible notes due 2026 traded down to 98.75 in the late afternoon.

The 0% convertible notes due 2028 sank to 97.

Both tranches were down 0.25 point dollar-neutral, a source said.

Enphase’s stock traded to a high of $181 and a low of $166.10 before closing the day at $167.37, a decrease of 7.46%.

Halozyme volatile

Halozyme Therapeutics priced an upsized $700 million of six-year convertible notes after the market close on Wednesday at the rich end of talk at par with a coupon of 0.25% and an initial conversion premium of 50%.

Price talk was for a coupon of 0.25% to 0.75% and an initial conversion premium of 45% to 50%, according to a market source.

The company entered into privately negotiated transactions with certain holders of its 1.25% convertible notes due 2024 to exchange the notes for $370.2 million in cash and 9.08 million shares of stock.

The notes were volatile in the secondary space.

They traded to a high of 102 and a low of 97.75 within an hour after the opening bell.

The notes were changing hands at 98.5 shortly before 11 a.m. ET.

They bounced back heading into the market close and were seen changing hands at 99.25 versus a stock price of $47.77.

The bonds were unchanged to expanded about 0.25 point dollar-neutral, a source said.

There was more than $82 million in reported volume.

Halozyme’s stock traded to a high of $50.80 and a low of $46.45 before closing the day at $47.31, a decrease of 8.05%.

Mentioned in this article:

Chefs’ Warehouse Inc. Nasdaq: CHEF

Enphase Energy Inc. Nasdaq: ENPH

Green Plains Inc. Nasdaq: GPRE

Halozyme Therapeutics Inc. Nasdaq: HALO

Spotify USA Inc. NYSE: SPOT

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