Morning Commentary: Winnebago convertible notes offering eyed; BrightSpring on deck

By Abigail W. Adams

Portland, Me., Jan. 18 – The convertibles primary market continued to roll out deals at a steady pace with one deal set to price after the market close on Thursday and one more on the calendar for next week.

Winnebago Industries Inc. plans to price $300 million of six-year convertible notes after the market close on Thursday, and BrightSpring Health Services Inc. is on the calendar with a $400 million offering of $50-par three-year tangible equity units.

Winnebago’s convertible notes offering looked cheap based on underwriters’ assumptions and, with a portion of proceeds used to repurchase its outstanding convertible notes, is expected to do well.

BrightSpring’s equity units are pricing concurrently with its IPO making valuation difficult. However, the offering was more of a mechanism to bypass restrictions on the amount that can be raised in an IPO, a source said.

While market players eyed the deals on deck with the market hungry for new paper, topical news continued to move the secondary space on a mixed open for equities.

The Dow Jones industrial average was down 34 points, or 0.09%, the S&P 500 index was up 0.47%, the Nasdaq Composite index was up 1.15% and the Russell 2000 index was up 0.39% shortly before 11 a.m. ET.

There was $71 million in reported convertible trading volume about one hour into the session with few names seeing concentrated activity.

However, BridgeBio Pharma, Inc.’s convertible notes were active after the company secured $1.25 billion in private financing.

Winnebago eyed

Winnebago Industries plans to price $300 million of six-year convertible notes after the market close on Thursday with price talk for a coupon of 3% to 3.5% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of 375 basis points over SOFR and a 33% vol.

Using those assumptions, the deal looked about 2 points cheap at the midpoint of talk, a source said.

The offering is the latest refinancing to come to market with proceeds to be used to repurchase a portion of the company’s 1.5% convertible notes due 2025 in privately negotiated transactions.

The deal was expected to be play to strong demand.

BrightSpring on deck

BrightSpring plans to price the first mandatory convertible deal of the year with the company offering $400 million of $50-par three-year tangible equity units concurrently with its IPO.

Pricing is expected after the market close on Jan. 25.

The tangible equity units are talked with a dividend of 6.25% to 6.75% and a threshold appreciation premium of 17.5% to 22.5%.

The tangible equity units are being marketed with assumptions of 600 bps over SOFR and a 40% to 37% vol. skew.

However, with no history as a public company, the vol. assumptions are meaningless, a source said.

“They haven’t got a clue,” the source said.

The tangible equity unit offering is most likely a method of bypassing capital raise restrictions on the IPO, sources said.

BridgeBio rises

BridgeBio’s convertible notes were active early Thursday after the company announced a capital infusion of $1.25 billion in private financing deals.

The biopharma’s 2.25% convertible notes due 2029 were the top trader in the space.

The notes jumped 2 points outright with stock up 8%.

The notes were trading at 86.25 early in the session, according to a market source.

There was $13 million in reported volume.

The 2.5% convertible notes due 2027 were changing hands at 120.375.

There was $6 million in reported volume.

BridgeBio’s stock was trading at $39.85, an increase of 7.97%, shortly before 11 a.m. ET.

The company was in focus after it announced two new financing transactions.

BridgeBio will receive $500 million from Blue Owl Capital and the Canada Pension Plan Investment Board in exchange for 5% royalties on the global sales of a product pending FDA approval.

It also entered into a refinancing deal with Blue Owl for $450 million that will extend the maturity of its senior credit facility to 2029 from 2026.

Blue Owl will also provide up to $300 for additional facilities to support the expansion of the biopharma’s pipeline.

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