Morning Commentary: NIO convertible offering eyed; Equinox notes jump in early trading

By Abigail W. Adams

Portland, Me., Sept. 19 – The convertibles primary and secondary markets were active on Tuesday with a $1 billion offering set to price after the market close and an overnight offering making its aftermarket debut.

NIO Inc. has returned to the convertibles market with a $1 billion two-tranche offering of six- and seven-year convertible notes.

The tranches modeled ridiculously cheap and rightfully so with investors wary of China-domiciled companies in general and NIO’s outstanding convertible notes poor performers, sources said.

While market players eyed the new deal in the works, new paper from Equinox Gold Corp. made its aftermarket debut.

In an overnight bought deal, Equinox priced $150 million of five-year convertible notes after the market close on Monday.

The new paper was active early in the session with the notes flat outright but making large gains dollar-neutral as stock plunged on the heels of the offering.

NIO eyed

NIO plans to price a $1 billion two-tranche offering of six- and seven-year convertible notes after the market close on Tuesday.

The offering consists of a $500 million tranche of six-year convertible notes with price talk for a coupon of 3.5% to 4% and an initial conversion premium of 27.5% to 32.5%.

The deal also includes a $500 million tranche of seven-year convertible notes with price talk for a coupon of 4.25% to 4.75% and an initial conversion premium of 27.5% to 32.5%.

The six-year tranche was marketed with assumptions of 750 basis points over SOFR and a 45% vol.; the seven-year tranche was marketed with assumptions of 800 bps over SOFR and a 45% vol.

Using those assumptions, the six-year tranche looked 7 points to 7.75 points cheap and the seven-year tranche looked 9.5 points cheap at the midpoint of talk, sources said.

While the notes modeled extremely cheap compared to other recent deals, “they have to in order for people to care,” a source said.

“They’re valued cheaply and rightfully so,” another source said.

Investors are wary of China-domiciled companies in general given the country’s mounting economic woes and serial issuer NIO’s outstanding convertible notes, which are heavily busted.

While busted, NIO’s outstanding 0% convertible notes due 2026 and 0.5% convertible notes due 2027 are trading with much tighter spreads than the tranches in the market with the notes yielding 9% and 11%, respectively, a source said.

There was some interesting activity in NIO’s outstanding convertible notes on Monday with the notes well bid and market sources speculating there may be some negotiations with the company.

While debt repayment has been identified as a use of proceeds from the sale of the new notes, no privately negotiated transactions related to NIO’s outstanding notes was specified.

Equinox expands

In an overnight bought deal, Equinox Gold priced $150 million of five-year convertible notes after the market close on Monday at par with a coupon of 4.75% and an initial conversion premium of 20%.

The new paper was active early in the session with the notes flat outright but making large dollar-neutral gains as stock plunged on the heels of the offering.

The 4.75% notes were wrapped around par versus a stock price of $4.38 early in the session, according to a market source.

There was $9 million in reported volume.

Equinox’s stock was trading at $4.38, a decrease of 16.32%, shortly before 11 a.m. ET.

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