Chegg’s new convertibles fall outright, hold on swap; GOL Linhas wrapped around par

By Abigail W. Adams

Portland, Me., March 22 – While convertibles primary market activity has been muted for much of the week, it leapt back into action with two deals totaling $900 million pricing prior to the market open.

Chegg Inc. priced an upsized $700 million of six-year convertible notes, and GOL Linhas Aereas Inteligentes SA priced $300 million five-year exchangeable notes.

The new paper hit the secondary space on an ugly day for the markets with equities tanking on fears of a slowdown in global growth.

The Dow Jones industrial average closed Friday down 460 points, the Nasdaq down 2.5% and the S&P 500 index down 1.9%.

The losses in Chegg’s stock were compounded by the release of a short-seller report prior to the market open.

While the new convertible notes were taking a hit outright, they were largely holding dollar-neutral, a market source said.

Chegg’s 0.25% convertible notes due 2023 were also active with the notes trading largely in line.

Chegg takes a hit

Chegg priced an upsized $700 million of six-year convertible notes prior to the market open on Friday at par with a coupon of 0.125% and an initial conversion premium of 30%, according to a market source.

Pricing came at the rich end of talk for a coupon of 0.125% to 0.625% and at the midpoint of talk for an initial conversion premium of 27.5% to 32.5%, according to a market source.

The greenshoe was also upsized to $100 million.

The initial size of the deal was $500 million with a greenshoe of $75 million.

The new paper dominated activity in the secondary space, accounting for $76 million of the $122 million on the tape about one hour into Friday’s session.

While the notes were up prior to the market open and were holding well on swap, the new 0.125% notes were taking a hit on an outright basis as Chegg stock tanked during Friday’s session.

The notes were up to 101 prior to the market open, a source said.

However, the notes dropped below par soon after the opening bell.

They were trading in a range of 99 to par early on Friday and continued to trade down as the session progressed.

The notes were trading at 97.75 bid, 98.25 offered versus a stock price of $37.50 in the afternoon, a market source said.

While the notes were expanded about 0.5 point on swap, “the outrights got beat down,” a market source said.

Chegg stock traded to a high of $39.56 and a low of $36.65 before closing the day at $36.92, a decrease of 6.91%.

In addition to a brutal day for equities, Chegg’s stock was taking an additional hit from a short-seller report released at the market open.

Andrew Left’s Citron Research published a report which accused Chegg of facilitating academic cheating.

The report alleged the online textbook rental, tutoring, scholarship and internship matching company may be operating illegally in 17 states.

The report gave the company a price target of $25 but stated if the company was required to disclose its client list the stock could hit $0.

While Chegg’s new convertible notes dominated activity in the secondary space, the company’s 0.25% convertible notes were also active.

Chegg’s 0.25% convertible notes due 2023 traded down to 154.25 early Friday and dropped to about 149 by the late afternoon.

However, the notes were largely trading in line on Friday after contracting 0.25 point dollar-neutral during the previous session.

About $10 million of the bonds had changed hands by the late afternoon.

GOL Linhas at par

GOL Linhas priced $300 million five-year exchangeable notes prior to the market open on Friday at par with a coupon of 3.75% and an initial exchange premium of 35%.

Pricing came at the rich end of revised price talk for a coupon of 3.75% to 3.875% and an initial exchange premium of 35%, according to a market source.

Initial price talk was for a coupon of 3.75% to 4.25% and an initial exchange premium of 30% to 40%, according to a market source.

The Rule 144A and Regulation S deal was slow to trade in the secondary space, sources said.

The 3.75% notes priced with a borrow facility creating a two-tier trading system.

While it was unclear how the notes were trading with the borrow facility, they were changing hands around par with stock around $14.40, a market source said.

GOL Linhas stock closed Friday at $14.15, a decrease of 8%.

Mentioned in this article:

Chegg Inc. NYSE: CHGG

GOL Linhas Aereas Inteligentes SA NYSE: GOL

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