September issuance eyed; Gogo convertible notes skyrocket; DocuSign breaks triple par

By Abigail W. Adams

Portland, Me., Sept. 1 – The convertibles primary market was again quiet on Tuesday with sources expecting the hiatus to extend for the remainder of the week.

There are deals in the pipeline in the return from the Labor Day holiday, sources said.

However, with the sense of urgency that drove many issuers to tap the market evaporating, the pace of new deal activity may be more like a normal September than the rapid-fire tempo of May, a source said.

But even at a slower pace, the convertibles primary market is poised for its best year for new issuance since at least 2001.

Meanwhile, the secondary space was firm on Tuesday and saw an uptick of activity as some convertible issuers saw huge stock swings.

There was $86 million on the tape about one hour into the session and $452 million in reported volume about one hour before the close.

Gogo Inc.’s 6% convertible notes due 2022 were in focus and skyrocketed alongside stock following news of the sale of a business segment.

DocuSign Inc.’s 0.5% convertible notes due 2023 broke triple par as stock skyrocketed on the eve of the company’s earnings report.

A normal September?

The primary market remained dormant on Tuesday, which is how it is expected to remain until following the Labor Day holiday.

While there are deals expected in the return from the long weekend, primary market activity may normalize for the remainder of September, a source said.

Rescue financing and market volatility drove many issuers to tap the market when they did.

“The urgency has slowed because the market has continued to improve,” the source said.

With the extended upswing of the market, many potential issuers may delay pulling the trigger on deals, a source said.

The volatility in March, April and May served as a “wake up call” and pushed many issuers to strike when the market was hot, a source said.

With that impetus cooling, there may be a slowdown in deal activity.

However, with the election looming in November, some issuers may have a new motivation to get their deals done now as opposed to later, a source said.

Even with a slowdown, the primary market is poised to see the highest volume for new deal activity in at least two decades.

There has been $86.71 billion in new convertibles issuance year to date with 2020 already the third highest volume year for new deal activity since 2001.

The current year trails only 2007 when $96.76 billion priced and 2003 when $94.28 billion priced, according to the Prospect News database.

Gogo skyrockets

Gogo’s 6% convertible notes due 2022 dominated activity on Tuesday with the notes skyrocketing alongside stock following the sale of one of its business segments.

The 6% convertible notes rose more than 40 points outright with stock up more than 40%.

The notes, which had been trading in the mid-70s as recently as mid-August, were changing hands at 120 early in the session.

They continued to rocket higher as the session progressed and were seen changing hands at 140 in the late afternoon.

“They’re go-go-going in the right direction,” a source said.

With more than $27 million on the tape, the issue was the most actively traded during Tuesday’s session.

Gogo stock has a notoriously hard borrow, which has made the name difficult to play on hedge, a source said.

While the notes were previously held by mostly outright accounts, they were moving into hedge hands following the stock move, the source said.

Gogo stock traded to a high of $8.00 and a low of $5.85 before closing the day at $7.37, an increase of 43.39%.

Stock skyrocketed after the inflight internet company announced it would sell its commercial aviation business to Intelsat SA for $400 million.

Intelsat is moving forward with the acquisition despite filing for Chapter 11 bankruptcy in May.

Intelsat intends to use cash on hand and borrowings under its $1 billion debtor-in-possession credit facility to finance the transaction, according to a company news release.

Intelsat is also an issuer of convertible bonds.

The company’s 4.5% convertible bonds due 2025 were changing hands at 36 in early August, according to Trace data.

DocuSign breaks triple par

DocuSign’s 0.5% convertible notes due 2023 broke triple par on Tuesday as stock broke out to a new 52-week high on the eve of the company’s earnings report.

The 0.5% notes were up more than 74 points outright to close the day at 374, a source said.

They expanded about 1 point dollar-neutral.

DocuSign stock traded to a low of $237.00 and a high of $271.44 before closing the day at $268.80, an increase of 20.54%.

Stock skyrocketed in sympathy with Zoom Video Communications Inc., which rose more than 40% on Tuesday after squashing expectations in its second-quarter earnings report.

Given the magnitude of the earnings beat, many were assuming they miscalculated the value of DocuSign and the impact of remote work on corporate profits, sources said.

DocuSign stock was $55.00 when the company priced the 0.5% convertible notes in September 2018.

Mentioned in this article:

DocuSign Inc. Nasdaq: DOCU

Gogo Inc. Nasdaq: GOGO

Intelsat SA OTCMKTS: INTEQ

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