Nabors on tap; market eyes AXA, EZCorp; Hope convertibles flat on debut; Atlassian up

By Abigail W. Adams

Portland, Me., May 9 – The convertibles primary market has been active with earnings season beginning to wrap up.

The primary market saw one deal price after the market close on Tuesday, two more deals were set to price after the market close on Wednesday and a fourth deal is scheduled to price prior to the market open Thursday.

Nabors Industries Ltd. plans to price $250 million, or 5 million shares, of three-year $50-par series A mandatory convertible preferred shares prior to the market open on Thursday with price talk for a dividend of 5.75% to 6.5% and an initial conversion premium of 17.5% to 22.5%, according to a market source.

Morgan Stanley & Co. LLC and Citigroup Global Markets Inc. are joint bookrunners for the registered offering, which carries a greenshoe of $37.5 million, or 750,000 shares.

The series A mandatory convertible preferreds are being priced alongside a concurrent offering of 35 million common shares. The common stock offering carries a greenshoe of 5.25 million shares.

EZCorp Inc. plans to price $100 million of seven-year convertible notes after the market close on Wednesday with price talk for a coupon of 2% to 2.5% and an initial conversion premium of 20% to 25%.

The deal “looks cheap, but there’s some funk there,” a market source said.

After a long wait, AXA SA plans to price $750 million of three-year bonds mandatorily exchangeable for AXA Equitable Holdings, Inc. stock after the market close on Wednesday.

The deal, which was launched in late April, will price alongside AXA Equitable Holdings’ IPO.

The deal looks good, but all eyes are on the common stock offering, a market source said.

New paper from Hope Bancorp Inc. hit the secondary market on Wednesday.

However, the new 2% notes due 2038 were largely trading flat or with a slight contraction dollar neutral, sources said.

After struggling on their market debut, Atlassian Corp. plc’s recently priced 0.625% convertible notes due 2023 reached new heights on an outright basis in high-volume trading.

EZCorp’s deal

EZCorp’s $100 million offering of seven-year convertible notes looks cheap, but there is an element of risk to the bonds, a market source said.

The company’s balance sheet looks good and will look even better once the convertible notes due 2019 are retired.

However, the company is in the pawn business, which carries a lot of uncertainty and puts a risk on the bonds, a market source said.

EZCorp is a repeat issuer of convertible notes with $230 million outstanding in 2.125% convertible notes due 2019 and $143.75 million outstanding in 2.875% convertible notes due 2024, according to Trace data.

The outstanding bonds have always traded tight on reasonable credit, the source said.

However, the 2.125% notes contracted 1 point dollar neutral after the launch of the new offering. The 2.125% notes dropped about 3 points outright to trade just north of 104.75 with stock down almost 9%.

The 2.875% convertible notes dropped 8 points outright to trade at 151.75, according to Trace data.

EZCorp stock closed Wednesday at $13.30, a decrease of 9.52%.

AXA’s deal

The deal that has been on the calendar for almost two weeks is set to price after the market close on Wednesday. However, all eyes are on the common stock offering, a market source said.

AXA SA plans to price $750 million of three-year bonds mandatorily exchangeable for AXA Equitable Holdings stock with price talk for a coupon of 6.75% to 7.25% and an initial exchange premium of 17.5% to 22.5%.

The deal will price alongside AXA Equitable Holdings’ IPO. AXA Equitable was targeting a $3.5 billion IPO with share prices between $24.00 and $27.00.

However, the share price was reduced to $20.00, according to a market source.

With no trading history to pull from, modeling the deal is difficult, sources said. “You just have to make an assumption on the vol.,” a market source said.

There is no borrow on the stock until the IPO is complete. While there is hope the bonds will actively trade in the secondary space, the bonds won’t trade until the stock gets lifted, a source said.

“You need to wait for the stock to get lifted before you can make a market,” the source said.

However, with the large coupon, “outright guys love it,” another source said.

Hope falls flat

New paper from Hope Bancorp hit the secondary market on Wednesday and was seen trading just above par out of the gate.

While the notes remained above par for Wednesday’s session, they were flat to slightly contracted dollar neutral, a market source said.

Hope priced $200 million of 2% 20-year convertible notes after the market close on Tuesday with an initial conversion premium of 22.5%.

Pricing came at the middle of price talk for a coupon of 1.75% to 2.25% and the cheap end of price talk for a conversion premium of 22.5% to 27.5%.

The 2% notes were trading between 100 and 100.5 early in the session. They were seen trading at 100.6 versus an equity price of $18.34 later in the afternoon.

The notes were largely trading in-line or contracted about 0.125 point dollar neutral, sources said. Hope Bancorp stock closed Wednesday at $18.21, an increase of 0.55%.

While active with $26 million on the tape by late afternoon, the new paper was not as active as existing issuances.

No Asian buyers took an interest in the convertible note offering from the United States’ only regional Korean-American bank, a market source said.

Atlassian’s new heights

Atlassian’s 0.625% convertible notes due 2023 were major volume movers on Wednesday with the notes and underlying equity reaching new heights.

The 0.625% notes traded north of 105 as the company’s stock broke out to set a new 52-week high.

The 0.625% notes were seen trading at 105.238 versus an equity price of $64.10. While the notes were largely in-line dollar neutral, the outright price marked a new height for the 0.625% convertible notes.

“It’s always nice to see a new deal doing well,” a market source said.

Atlassian priced an $850 million issuance of the 0.625% notes on April 24. The notes struggled out of the gate and largely traded just below par their first week in the secondary market.

However, the notes have steadily climbed alongside stock since May with the notes trading in the 103 to 104 range since Monday.

Atlassian stock has set a new 52-week high each day this week. Atlassian stock closed Wednesday at $64.29, an increase of 1.76%, topping its previous 52-week high of $63.18, which it set on Tuesday.

Mentioned in this article:

Atlassian Corp. plc Nasdaq: TEAM

EZCorp Inc. Nasdaq: EZPW

Hope Bancorp Inc. Nasdaq: HOPE

Nabors Industries Ltd. NYSE: NBR

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