Convertibles secondary space firms; Cutera, InterDigital notes expand; Dick’s volatile

By Abigail W. Adams

Portland, Me., May 25 – The convertibles secondary space was active on Wednesday as $600 million in new supply entered the market.

Cutera Inc. priced $200 million of six-year convertible notes and InterDigital, Inc. priced an upsized $400 million of five-year convertible notes after the market close on Tuesday.

The new paper came as refinancings with both companies repurchasing or exchanging for cash and shares existing notes.

While both deals launched on Tuesday as volatility continued to roil equity markets, they hit the secondary space on a strong day for risk assets.

Cutera’s new paper was volatile at the open but improved as the session progressed with Cutera and InterDigital closing the day with large outright and dollar-neutral gains.

While choppy in early trading, equity indexes were making large gains following the release of Federal Reserve minute notes.

“Usually, it’s just a head fake, but it’s holding this time,” a source said.

The Dow Jones industrial average closed Wednesday up 192 points, or 0.60%, the S&P 500 index closed up 0.95%, the Nasdaq Composite index closed up 1.51% and the Russell 2000 index closed up 1.95%.

The secondary space had a firmer tone on Wednesday with buyers returning to the market.

Outright accounts were again putting money to work, a source said.

There was $727 million in reported volume shortly before the market close with Cutera and InterDigital dominating the tape.

Dick’s Sporting Goods Inc.’s deep-in-the-money 3.25% convertible notes due 2025 also saw heavy volume as the notes whipsawed between large gains and losses on an outright basis.

While volatile outright, the notes were largely moving in line with stock.

Cutera active

Cutera priced $200 million of six-year convertible notes after the market close on Tuesday at par at the cheap end of talk with a coupon of 2.25% and an initial conversion premium of 27.5%.

Price talk was for a coupon of 1.75% to 2.25% and an initial conversion premium of 27.5% to 32.5%.

Cutera entered into privately negotiated transactions with holders of its 2.25% convertible notes due 2026 to exchange $69.1 million in principal for $45.8 million in cash and 1.4 million shares.

The new paper was volatile on an outright basis with the notes trading as low as 98.5 soon after the opening bell but climbing to a 103-handle heading into the market close.

The notes were changing hands just shy of 103.75 versus a stock price of $43.88 in the late afternoon.

The notes were flat dollar-neutral early in the session but were seen expanded 1 point on swap in the late afternoon, sources said.

Cutera’s stock traded to a low of $39.58 and a high of $44.21 before closing the day at $43.59, an increase of 5.52%.

InterDigital expands

InterDigital priced an upsized $400 million of five-year convertible notes after the market close on Tuesday at par with a coupon of 3.5% and an initial conversion premium of 27.5%.

Pricing came in line with talk for a fixed coupon of 3.5% and a fixed initial conversion premium of 27.5%.

The greenshoe was also upsized to $60 million.

The initial size of the offering was $350 million with a greenshoe of $52.5 million.

Proceeds were used to repurchase $273.8 million of the principal amount of the company’s 2% senior notes due 2024 for $285.2 million in privately negotiated transactions.

The company also repurchased $75 million of its common stock for $60.78 per share, the closing price on May 24.

The new paper made large gains on an outright and dollar-neutral basis in early trading.

The 3.5% notes traded as high as 102.375 shortly after the opening bell. However, they came in to trade on a 101-handle for the duration of the session.

The notes were seen at 101.625 versus a stock price of $60.29 heading into the market close.

They expanded about 1 point dollar-neutral, a source said.

There was $64.5 million in reported volume.

InterDigital’s stock traded to a low of $57.08 and a high of $60.50 before closing the day at $60.24, a decrease of 0.89%.

Dick’s volatile

Dick’s deep-in-the-money 3.25% convertible notes due 2025 were volatile in active trading with the notes whipsawing between large gains and losses alongside stock.

The 3.25% convertible notes sank 25 points in early trading with stock down more than 15% pre-open after the sporting goods retailer released earnings and cut its forward guidance.

However, the notes surged alongside stock as the session progressed with the notes jumping from their early morning level of 199 to 245 by the late afternoon.

The 3.25% notes were changing hand at 245.75 versus an equity price of $80.10 heading into the market close.

While the convertible notes saw wild swings on an outright basis, they were moving in line with stock.

There was $20 million in reported volume.

Dick’s stock traded to a low of $63.45 and a high of $81.30 before closing the day at $78.14, an increase of 9.69%.

Dick’s reported earnings per share of $2.85 versus analyst expectations for earnings per share of $2.53.

Revenue was $2.7 billion versus analyst expectations for revenue of $2.63 billion.

However, the company projected a steeper decline in sales than previously anticipated with annual earnings per share now expected to be $9.15 to $11.70 versus previous guidance of $11.70 and $13.10.

Mentioned in this article:

Cutera Inc. Nasdaq: CUTR

Dick’s Sporting Goods Inc. NYSE: DKS

InterDigital, Inc. Nasdaq: IDCC

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