Xerox convertibles eyed; $4.38 billion in supply hits aftermarket, strong on debut

By Abigail W. Adams

Portland, Me., March 6 – The convertibles primary market continued to up the ante on what promises to be a historic week for new deal activity with one deal slated to price post-close after $4.375 billion cleared the calendar the previous session.

The deluge of deals that priced on Tuesday marked the highest volume day by face amount for new issuance since March 2, 2021 with the exercise of greenshoes promising to lift the tally to the highest volume day in more than one decade.

While there were concerns of indigestion, the strong demand for new paper showed no signs of abating with Xerox Holdings Corp.’s $300 million offering of six-year convertible notes, which is slated to price post-close, heavily sought after.

The new paper from SoFi Technologies Inc., MicroStrategy Inc., Tandem Diabetes Care Inc., Kosmos Energy Ltd., LivaNova plc and Albemarle Corp. hit the secondary space on a green day for equities with markets responding favorably to Federal Reserve chair Jerome Powell’s congressional testimony.

The Dow Jones industrial average closed Wednesday up 76 points, or 0.20%, the S&P 500 index closed up 0.51%, the Nasdaq Composite index closed up 0.58% and the Russell 2000 index closed up 0.70%.

There was $930 million in reported convertible bond trading volume in the late afternoon with new paper dominating activity.

The new paper was strong on debut with all deals making gains on an outright and dollar-neutral basis.

The strong gains were supported by strong stock moves among the issuers.

“These stock moves are absolutely bonkers,” a source said.

Xerox on tap

Xerox plans to price $300 million of six-year convertible notes (B1) after the market close on Wednesday with price talk for a coupon of 4% to 4.5% and an initial conversion premium of 17.5% to 22.5%.

The deal was heard to be in the market with assumptions of 550 basis points over SOFR and a 38% vol.

The deal looked cheap with the borrow OK although there was a little squeeze on it on Wednesday as players established their hedges, a source said.

The deal was pegged as 3.5 points cheap at the midpoint of talk and was optically attractive, a source said.

The company has a heavy debt load, which is not the norm for a convertible issuer.

However, proceeds, together with proceeds from the concurrent upsized $500 million issue of senior guaranteed notes due November 2029 (B1/BB), will be used to fund the tender offer for any and all of its 3.8% senior notes due 2024 and a portion of its 5% senior notes due 2025, which was a good use of proceeds.

The deal was heard to be playing to heavy demand.

SoFi expands

SoFi priced a $750 million offering of five-year convertible notes after the market close on Tuesday at par with a coupon of 1.25% and an initial conversion premium of 30%.

Pricing came at the midpoint of talk for a coupon of 1% to 1.5% and an initial conversion premium of 27.5% to 32.5%.

While a refinancing with proceeds to be used to redeem the company’s 12.5% series 1 preferred stock, proceeds were not used to refinance the company’s convertible notes.

Instead, the company opted to issue stock to address its 0% convertible senior notes due 2026.

The company issued 61,713,287 shares of stock in separate privately negotiated exchange agreements for $600 million in principal of the 0% convertible senior notes due 2026.

The transactions were described as excellent liability management.

The new 1.25% convertible notes were putting in a strong performance in the aftermarket.

They traded up to 101.5 early in the session and continued to climb as the session progressed.

The new 1.25% convertible notes were trading at 102 versus a stock price of $7.47 in the late afternoon.

They expanded about 1.5 points dollar-neutral, a source said.

There was $145 million in reported volume.

SoFi’s stock traded to a low of $7.05 and a high of $7.62 before closing at $7.40, an increase of 1.79%.

Tandem volatile

Tandem Diabetes priced an upsized $275 million, from $250 million, of five-year convertible notes after the market close on Tuesday at par at the midpoint of talk with a coupon of 1.5% and an initial conversion premium of 27.5%.

Price talk was for a coupon of 1.25% to 1.75% and an initial conversion premium of 25% to 30%.

The notes saw large outright swings alongside stock.

They hit as high as 104.25 pre-open but came in to trade around par as stock sank early in the session.

The notes again climbed alongside stock as the session progressed.

They returned to trade at 104.25 versus a stock price of $27.26 in the late afternoon.

They were up 3 points on hedge, a source said.

There was $50 million in reported volume.

Stock swung about 7% between its intraday high and low.

“That’s pretty significant for a name like this,” the source said.

Tandem’s stock traded to a low of $25.78 and a high of $27.70 before closing at $27.07, off 0.13%.

LivaNova frenzy

LivaNova sold $300 million of five-year convertible notes after the market close on Tuesday at par with a coupon of 2.5% and an initial conversion premium of 32.5%.

Pricing came at the midpoint of talk for a coupon of 2.25% to 2.75% and at the rich end of talk for an initial conversion premium of 27.5% to 32.5%.

The notes traded as high as 103.25 at the open but came in to trade around 101 as the session progressed.

“There was a little bit of a frenzy at the opening,” a source said.

They regained strength as the session progressed and were trading at 102.875 versus a stock price of $14.41 in the late afternoon.

While the notes were up as much as 3 points dollar-neutral at one point, they stood poised to close the day with a 2-point expansion.

LivaNova’s stock traded to a low of $50.97 and a high of $54.14 before closing at $53.26, up 1.68%.

MicroStrategy skyrockets

MicroStrategy priced an upsized $700 million, from $600 million, of six-year convertible notes after the market close on Tuesday at par with a coupon of 0.625% and an initial conversion premium of 42.5%.

Pricing came toward the rich end of talk for a coupon of 0.5% to 1% and at the rich end of talk for an initial conversion premium of 37.5% to 42.5%.

The new paper skyrocketed outright as stock surged 20%.

The 0.625% notes were marked at 112.5 bid, 113.25 offered versus a stock price of $1,261 in the late afternoon.

They expanded 2.5 points to 2.75 points dollar-neutral, a source said.

There was $108 million in reported volume.

MicroStrategy’s stock traded to a low of $1,131.10 and a high of $1,285.55 before closing at $1,246.21, an increase of 18.57%.

Kosmos gains

Kosmos brought an upsized $350 million, from $300 million, of six-year convertible notes after the market close on Tuesday at par with a coupon of 3.125% and an initial conversion premium of 30%.

Pricing came toward the cheap end of talk for a coupon of 2.875% to 3.375% and at the midpoint of talk for an initial conversion premium of 27.5% to 32.5%.

The notes traded up to a 105-handle and were changing hands at 105.5 versus a stock price of $5.68 in the late afternoon.

The notes expanded on the move up.

There was $31 million in reported volume.

Kosmos’ stock traded to a low of $5.35 and a high of $5.70 before closing at $5.59, up 3.71%.

Albemarle trades up

Albemarle priced an upsized $2 billion, from $1.75 billion, offering of three-year $50-par depositary shares representing a 1/20th interest in a share of $1,000-par series A mandatory convertible preferred stock after the market close on Tuesday at par with a dividend of 7.25% and a threshold appreciation premium of 20%.

Pricing came at the midpoint of talk for a dividend of 7% to 7.5% and a threshold appreciation premium of 17.5% to 22.5%.

The depositary shares were making large outright gains on a strong day for stock.

They traded as high as $53.72 in intraday activity and closed at $53.25.

While the notes made strong outright gains, the notes only saw a nominal dollar-neutral expansion of 0.25 point.

Outright accounts were selling amid the move up, which prevented the notes from expanding on hedge.

Albemarle’s stock traded to a low of $110.28 and a high of $119.83 before closing at $119.59, up 9.27%.

Mentioned in this article:

Albemarle Corp. NYSE: ALB

iRhythm Technologies Inc. Nasdaq: IRTC

Kosmos Energy Ltd. NYSE: KOS

LivaNova plc Nasdaq: LIVN

MicroStrategy Inc. Nasdaq: MSTR

SoFi Technologies Inc. Nasdaq: SOFI

Tandem Diabetes Care Inc. Nasdaq: TNDM

Xerox Holdings Corp. Nasdaq: XRX

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