Convertibles primary eyes $2.98 billion; Envestnet, Parsons expand; Chegg tightens talk

By Abigail W. Adams

Portland, Me., Aug. 18 – The convertibles primary market resumed its record-setting pace with new deals once again coming at breakneck speed.

Two deals totaling $800 million priced after the market close on Monday, five deals totaling $2.08 billion are slated to price after the market close on Tuesday, and two deals totaling $900 million are on deck for Wednesday.

Envestnet Inc. priced $450 million of five-year convertible notes and Parsons Corp. sold an upsized $350 million of five-year convertible notes after the market close on Monday.

The new paper dominated activity in the secondary space with both Envestnet’s and Parsons’ convertible notes trading up on an outright and dollar-neutral basis.

As the new paper made its aftermarket debut, market players were eyeing the onslaught of deals in the pipeline.

Middleby Corp. plans to price $550 million of five-year convertible notes, Cinemark Holdings Inc. plans to sell $400 million in five-year convertible notes, Chegg Inc. plans to bring $750 million of six-year convertible notes, Hannon Armstrong Sustainable Infrastructure Capital Inc. plans to price $125 million of three-year convertible notes and Antero Resources Corp. plans to sell $250 million of six-year convertible notes after the market close on Tuesday.

Etsy Inc. plans to price $650 million of seven-year convertible notes and Sabre Corp. plans to sell $250 million of three-year $100-par series A mandatory convertible preferred stock after the market close on Wednesday.

The deals continued to model cheap based on underwriters’ assumptions and played to solid demand, sources said.

Chegg was heard to have tightened talk during bookbuilding.

Envestnet expands

Envestnet priced $450 million of five-year convertible notes after the market close on Monday at par at the rich end of talk with a coupon of 0.75% and an initial conversion premium of 35%.

Price talk was for a coupon of 0.75% to 1.25% and an initial conversion premium of 30% to 35%, according to a market source.

The 0.75% convertible notes skyrocketed in the aftermarket.

They were up more than 3 points outright with stock largely flat early in the session.

The notes were marked at 103 bid, 103.75 offered versus a stock price $79.07 about one hour after the opening bell.

The notes remained on a 103-handle as stock improved as the session progressed and were seen changing hands at 103.5 in the late afternoon.

They expanded 2.5 points dollar-neutral.

Envestnet stock traded to a high of $81.72 and a low of $78.38 before closing the day at $80.24, an increase of 1.48%.

Parsons upsizes

Parsons priced an upsized $350 million of five-year convertible notes after the market close on Monday at par with a coupon of 0.25% and an initial conversion premium of 35%.

Pricing came at the midpoint of talk for a coupon of 0% to 0.5% and at the rich end of talk for an initial conversion premium of 30% to 35%, according to a market source.

The notes were trading with a par-handle early in the session. However, they improved alongside stock as the session progressed.

The 0.25% notes were marked at 101.5 bid, 102 offered in the late afternoon.

They expanded 0.75 point to 1 point dollar-neutral, sources said.

Parsons stock traded to a high of $33.90 and a low of $32.30 before closing the day at $33.65, an increase of 1.11%.

Chegg tightens talk

Chegg’s latest offering of convertible notes was in demand during bookbuilding with talk tightening, a source said.

The online textbook rental, tutoring, scholarship and internship matching company plans to sell $750 million of six-year convertible notes after the market close on Tuesday with price talk tightened to a coupon of 0% to 0.125% and an initial conversion premium of 37.5%.

Initial talk was for a coupon of 0% to 0.5% and an initial conversion premium of 32.5% to 37.5%.

The deal was heard to be in the market with assumptions of 400 bps over Libor and a 40% vol.

Using those assumptions, the deal looked 1.5 points cheap at the midpoint of initial talk, a source said.

The company is a repeat issuer of convertible notes.

While Chegg’s latest offering was in the works, its 0.125% convertible notes due 2025 were active.

The notes were changing hands at 159.375 in the mid-afternoon but were largely unchanged, a source said.

Chegg stock closed Tuesday at $78.22, a decrease of 1.87%.

Proceeds from Chegg’s latest offering will be used, in part, to fund the repurchase or exchange of the company’s existing 0.25% convertible notes due 2023.

The 0.25% convertible notes topped triple par, reaching a height of 306.5 last week, according to Trace data.

Cinemark in focus

Cinemark Holdings plans to price $400 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 4.5% to 5% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be marketed with assumptions of 1,350 bps over Libor and a 45% vol., a source said.

Using those assumptions, the deal looked 3.57 points cheap at the midpoint of talk.

The theater chain operator is a highly speculative credit, a source said.

While the offering is risky, “it could be great,” another source said, with deal was optically attractive.

However, a buyside source saw little reason to participate in the deal.

Cinemark stock got crushed on the heels of the convertible notes offering and closed Tuesday at $11.04, a decrease of 13.68%.

Middleby on tap

Middleby plans to sell $550 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.75% to 1.25% and an initial conversion premium of 30% to 35%.

The deal was heard to be in the market with assumptions of 400 bps over Libor and a 35% vol., according to a market source.

Using those assumptions, the deal looked 3.64 points cheap at the midpoint of talk.

The deal looked good and was expected to do well, sources said.

Antero Resources on deck

Antero Resources plans to price $250 million of six-year convertible notes after the market close on Tuesday with price talk for a coupon of 3.75% to 4.25% and an initial conversion premium of 20% to 25%.

Underwriters were marketing the deal with assumptions of 1,500 bps over Libor and a 45% vol., sources said.

Using those assumptions, one source pegged the deal 3.17 points cheap at the midpoint of talk.

However, another source pegged the credit spread at 1,669 bps over Libor, which reduced the cheapness of the deal.

Using a wider spread, the fair value of the deal modeled out to 101.46 points.

The oil and gas company is a well-known name in junkbondland but is making its debut appearance in the convertibles market.

While the deal looked cheap, the company is a tough credit from the energy sector, a source said.

There is constant speculation about Antero filing for bankruptcy, as many of its peers, such as Chesapeake Energy Corp., have done recently.

The convertible notes offering is part of Antero’s effort to address its debt burden.

Proceeds from the convertible notes offering will be used to pay the outstanding balance of its revolving credit facility, which may again be utilized to fund tender offers for its junk bonds.

Hannon Armstrong ahead

Hannon Armstrong Sustainable Hannon Infrastructure Capital plans to price $125 million of three-year convertible notes after the market close on Tuesday with price talk for a coupon of 0% and an initial conversion premium of 25% to 30%.

The deal was heard to be marketed with assumptions of 275 bps over Libor and a 36% vol., a source said.

Using those assumptions, the deal looked 2.27 points cheap at the midpoint of talk.

The deal is being marketed as a “green convertible,” making it the sixth green convertible this year.

While the company is a double B credit and the deal modeled cheap, the offering was too small for some sources to take an interest in.

The convertible notes are pricing concurrently with an offering of 10-year senior notes, which upsized to $375 million from $350 million and came with a discounted offer price of 99 and a coupon of 3.75% to yield 3.871%.

Wednesday’s deals

The forward calendar continued to grow with two deals totaling $900 million slated to price after the market close on Wednesday.

Sabre plans to price $250 million of three-year $100-par series A mandatory convertible preferred stock after the market close on Wednesday with price talk for a dividend of 6.25% to 6.75% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

Morgan Stanley & Co. LLC (lead left), BofA Securities Inc., Goldman Sachs & Co. LLC, Mizuho Securities USA Inc., Wells Fargo Securities LLC, Deutsche Bank Securities Inc. and Citigroup Global Markets Inc. are bookrunners for the registered offering, which carries a greenshoe of $37.5 million.

Etsy plans to sell $650 million of seven-year convertible notes after the market close on Wednesday with price talk for a coupon of 0.125% to 0.625% and an initial conversion premium of 47.5% to 52.5%, according to a market source.

Goldman Sachs, J.P. Morgan Securities LLC and Citigroup are bookrunners for the Rule 144A offering, which does not carry a greenshoe.

Mentioned in this article:

Antero Resources Corp. NYSE: AR

Chegg Inc. NYSE: CHGG

Cinemark Holdings Inc. NYSE: CNK

Envestnet Inc. NYSE: ENV

Etsy Inc. Nasdaq: ETSY

Middleby Corp. Nasdaq: MIDD

Parsons Corp. NYSE: PSN

Sabre Corp. Nasdaq: SABR

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