Zendesk, Supernus on tap; Helix Energy convertibles price cheap, dominate trading

By Abigail W. Adams

Portland, Me., March 14 – With equity prices high, the conditions were ripe this week for new issuance in the convertible bond market, and the primary market did not disappoint in bringing new deals forward.

Helix Energy Solutions Group Inc. priced $125 million of five-year convertible notes after the market close on Tuesday with a coupon of 4.125% and an initial conversion premium of 45%.

The new 4.125% notes dominated trading activity in the secondary space with the notes trading up even as its underlying equity tanked.

While Helix’s new 4.125% notes made their debut in the secondary market, the primary market was preparing new deals from Supernus Pharmaceuticals, Inc. and Zendesk Inc.

Supernus plans to price $350 million of five-year convertible notes after the market close Wednesday with price talk for a coupon of 0.75% to 1.25% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

“It looks good,” a market source said. “I hope they don’t reprice it.”

Zendesk plans to price $500 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 25% to 30%, according to a market source.

Goldman Sachs & Co. and Morgan Stanley & Co. LLC are the bookrunners for the Rule 144A deal, which carries a greenshoe of $75 million.

While the new paper from Guidewire Software Inc. and Etsy Inc. were among the top names traded since hitting the market on Friday, trading in the notes tapered on Wednesday. Guidewire’s 1.25% notes due 2025 saw $7.25 million in trading volume by late afternoon.

They were seen trading at 101.625 versus an equity price of $87.05. Etsy’s 0% notes due 2023 saw $6 million in trading volume by late afternoon Wednesday. They were seen trading at 104.658 versus an equity price of $28.35.

Nutanix Inc.’s 0% convertible notes due 2023 continued to soar on Wednesday with their underlying equity once again breaking out to set a new 52-week high. In the two months since pricing, the company’s equity has surpassed the conversion price of $48.85 on the 0% notes.

Helix hits the market

Helix’s new 4.125% notes hit the market on Wednesday, dominating trading activity in the convertibles space with trading volume of $34.87 million by late afternoon, according to a market source.

Helix priced $125 million of five-year convertible notes after the market close on Tuesday with a coupon of 4.125% and an initial conversion premium of 45%.

Pricing came at the cheap end of talk for a coupon of 3.625% to 4.125% and an initial conversion premium of 45% to 50%, according to a market source.

There was a good mix of both hedge and long only accounts involved in the subscription process. “It was both, but it was heavily allocated to fundamentals,” a market source said.

The new 4.125% notes were trading in a range of 101.5 to 102.5 with the stock “moving around quite a bit,” a market source said. “It’s pretty sensitive to stock.”

Helix was seen trading later in the afternoon at 102 versus an equity price of $5.82. Helix’s stock was down 4% to 15% throughout Wednesday’s session. Helix stock closed the day at $6.05, a decrease of 7.35%.

The new deal was marketed with a credit spread of 525 bps over Libor and a 45 vol., which modeled about 9.5 points cheap, so the notes were up even with the decline in stock, a market source said.

Proceeds from the convertible notes will be used, in part, to repurchase the outstanding $60,115,000 of the company’s 3.25% convertible notes due 2032.

Helix announced a put option on the 3.25% notes on Feb. 14, which expires on March 15, Prospect News reported. If the put option is not exercised, Helix may call the remaining amount, according to a company news release.

The 3.25% notes are “close to the end of their life,” a market source said.

A repeat issuer of convertible notes, Helix also has $125 million of 4.25% convertible notes due 2022 outstanding. The 4.25% notes were trading at 95.24 early Wednesday, according to Trace data.

Supernus’ deal

Supernus plans to price $350 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 0.75% to 1.25% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

The deal from the Rockville, Md.-based pharmaceutical company, which is focused on the treatment of central nervous system disorders, is being marketed with a credit spread of 350 bps over Libor and a 40% vol. With a market cap of $2.185 billion, Supernus’ deal should go well, a market source said.

“It has a real market cap and a five-year structure which people like,” another market source said. “A lot of people got bitten with the seven-year maturity in the first wave of health care converts early in the year.”

Exact Sciences Corp. priced $600 million of 1% convertible notes due 2025 with an issue price of 98.75 on Jan. 12.

Exact Sciences’ 1% convertible notes tanked shortly after pricing and spent much of February trading in the low 90s and high 80s, according to Trace data.

However, the 1% notes have rebounded in the past week and were seen trading at 98.75 on Wednesday, their highest point in recent history. Exact Sciences’ stock closed Wednesday at $52.76, an increase of 0.4%.

Alder BioPharmaceuticals, Inc. priced $250 million of 2.5% convertible notes due 2025 on Jan. 30. While Alder also fell shortly after pricing and traded well below par for much of February, they have also since rebounded.

The notes traded in a range of 99 to 101.25 on Wednesday, according to Trace data. Alder stock closed Wednesday at $14.45, a decrease of 5.25%.

Nutanix in the money

Nutanix’s 0% convertible notes due 2023 continued to climb to new heights on Wednesday as the San Jose, Calif.-based cloud computing software company’s stock again set a new 52-week high. The 0% notes traded up to 128.203 versus an equity price of $54.57.

Nutanix stock closed Wednesday at $54.66, an increase of 3.05%. Nutanix stock was $36.73 when the notes priced on Jan. 17.

The 0% convertible notes dropped below par in late January after a downgrade from JPMorgan. However, the notes have made a comeback, steadily climbing to new heights as its underlying equity soared.

Nutanix held an Investor’s Day on Tuesday where it announced its goal of $3 billion in product and support billing by fiscal year 2021.

Nutanix also recently announced a definitive agreement to purchase Netsil Inc., a San Francisco-based observability and analytics company for cloud applications.

Mentioned in this article:

Alder BioPharmaceuticals, Inc. Nasdaq: ALDR

Etsy Inc. Nasdaq: ETSY

Exact Sciences Corp. Nasdaq: EXAS

Guidewire Software Inc. NYSE: GWRE

Helix Energy Solutions Group Inc. NYSE: HLX

Nutanix Inc. Nasdaq: NTNX

Supernus Pharmaceuticals, Inc. Nasdaq: SUPN

Zendesk Inc. NYSE: ZEN

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