Spotify, Green Plains, Chefs’ Warehouse on tap; Halozyme, Enphase convertibles eyed

By Abigail W. Adams

Portland, Me., Feb. 24 – The convertibles primary market continued to roll out new deals on Wednesday with three offerings totaling $1.65 billion set to price after the market close and $1.3 billion on deck for Thursday.

Spotify Technology SA plans to price $1.3 billion of five-year notes exchangeable for Spotify USA Inc.’s shares after the market close on Thursday.

The Chefs’ Warehouse Inc. is also on deck with a $50 million add-on to its 1.875% convertible notes due 2024.

In an overnight offering, Green Plains Inc. plans to price $150 million of six-year convertible notes after the market close on Wednesday.

Halozyme Therapeutics Inc. also plans to price an upsized $600 million of six-year convertible notes and Enphase Energy Inc. plans to sell $1 billion of convertible notes in five- and seven-year tranches after the market close on Wednesday.

The pricing of the notes remained aggressive.

However, both deals involved repurchases of outstanding issues, and investor demand remains strong despite the tumult in equities.

Meanwhile, it was an active day in the convertibles secondary space as equity markets continued to rebound and investors poured back into the tech sector with the Nasdaq composite turning positive after a brutal sell-off over the past two sessions.

After a rocky start, the Dow Jones industrial average closed the day up 424 points, or 1.35%, the S&P 500 index closed the day up 1.14% and the Nasdaq finished up 0.99%.

Dropbox Inc.’s new convertible notes were in focus. However, they fell flat on an outright basis and saw only a nominal dollar-neutral expansion, which sources attributed to their tight pricing.

The calendar

The calendar continued to grow on Wednesday as equities rebounded and companies exited their earnings season blackouts.

In an overnight offering, Green Plains plans to price $150 million of six-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 35% to 40%, according to a market source.

Jefferies LLC and BofA Securities Inc. are joint bookrunners for the registered offering, which carries a greenshoe of $22.5 million.

Spotify plans to price $1.3 billion of five-year notes exchangeable for Spotify USA shares after the market close on Thursday with price talk for a fixed coupon of 0% and an initial exchange premium of 65% to 75%, according to a market source.

Morgan Stanley & Co. LLC is lead left bookrunner for the Rule 144A offering, which carries a greenshoe of $200 million.

Chefs’ Warehouse also plans to price a $50 million add-on to its 1.875% convertible notes due 2024.

However, further details were unavailable by press time.

Halozyme in demand

Halozyme Therapeutics’ offering of six-year convertible notes was in demand during bookbuilding with the offering upsizing to $600 million from $500 million, according to a market source.

Price talk is for a coupon of 0.25% to 0.75% and an initial conversion premium of 45% to 50%.

Underwriters were marketing the deal with assumptions of 275 basis points over Libor and a 38% vol., which looked 0.35 point cheap at the midpoint of talk, a source said.

The biotech company is a heavily shorted name with short interest 11.37%, a source said.

However, “the company is in the throws of a major upswing,” another source said.

The company’s stock jumped more than 13% on Wednesday on the heels of its fourth-quarter earnings report.

While the company missed analyst expectations on the top line, they beat on the bottom.

Halozyme reported earnings per share of 50 cents versus analyst expectations for earnings of 53 cents.

However, revenue was $121 million, which beat expectations for revenue of $120 million.

Both earnings-per-share and revenue was up year over year, and the prospects for the company are positive.

“They’re a good company,” a source said. “In the next couple of years, they should be able to generate free cash flow.”

Proceeds from the new offering are being used to exchange Halozyme’s 1.25% convertible notes due 2024 for cash and shares in privately negotiated transactions.

Holders of the old notes were switching into the new notes, which was helping to drive demand, a source said.

Halozyme priced a $460 million issue of the 1.25% convertible notes in November 2019.

The notes topped double par mid-January and were changing hands just shy of 217 on Feb. 9, according to Trace data.

Enphase eyed

Enphase Energy plans to price $1 billion of convertible notes in five- and seven-year tranches after the market close on Wednesday.

The deal consists of a $500 million tranche of five-year notes with price talk for a coupon of 0% to 0.25% and an initial conversion premium of 60% to 65%, according to a market source.

The deal also consists of a $500 million tranche of seven-year notes with price talk for a coupon of 0% to 0.5% and an initial conversion of 50% to 55%.

The five-year notes were heard to be in the market with assumptions of 250 bps over Libor and a 50% vol., according to a market source.

Using those assumptions, the deal looked 1.67 points cheap at the midpoint of talk.

The 2028 notes were heard to be marketed with assumptions of 275 bps over Libor and a 48% vol., which looked 0.6 point cheap at the midpoint of talk.

While the deals modeled cheap, the terms were aggressive; however, those are the terms that the market is accepting, a source said.

Enphase is a solid company and is well-known in the convertibles universe.

Concurrently, the company will enter into privately negotiated transactions to repurchase a portion of its 1% convertible notes due 2024 and its 0.25% convertible notes due 2025 for cash and shares.

Enphase priced a $132 million issue of the 1% notes in May 2019 and a $230 million issue of the 0.25% notes in March 2020.

The 1% convertible notes were changing hands at 855 and the 0.25% convertible notes traded at 229 on Wednesday, according to Trace data.

Dropbox in focus

Dropbox’s two tranches of convertible notes were in focus in the secondary space.

However, the notes fell flat on an outright basis and saw only a nominal dollar-neutral expansion, which sources attributed to the tight pricing of the notes.

Despite a brutal sell-off in the tech sector on Tuesday, the file sharing company priced an upsized $1.306 billion of convertible notes in five- and seven-year tranches.

The deal consists of an upsized $653 million tranche of five-year notes, which priced with a coupon of 0% and an initial conversion premium of 65%.

The deal also consists of an upsized $653 million tranche of seven-year notes, which priced with a coupon of 0% and an initial conversion premium of 52.5%.

Pricing of the five-year notes came in line with talk for a fixed coupon of 0% and at the rich end of tightened talk for a coupon of 65%.

Talk for the five-year notes tightened to an initial conversion premium of 60% to 65%. Initial talk was for a fixed coupon of 0% and an initial conversion premium of 55% to 60%.

Pricing of the seven-year notes came at the rich end of talk for a coupon of 0% and an initial conversion premium of 52.5%.

Price talk was for a coupon of 0% to 0.5% and an initial conversion premium of 47.5% to 52.5%.

The greenshoe on both tranches was upsized to $65.3 million.

The initial size of the offering was $1.135 billion split equally into two $567.5 million tranches with both tranches carrying a greenshoe of $56.75 million.

Both tranches were trading in a range of par to 101 early in the session with the 2028 notes lagging the 2026 notes by about 0.125 point, a source said.

However, both tranches were stuck in a tight range of par to 100.25 heading into the afternoon.

They expanded 0.5 point dollar-neutral, a source said.

While above par and expanded dollar-neutral, Dropbox was the first recent deal to not skyrocket out of the gate, a source said.

“They [underwriters] took a lot of the juice out of them,” a source said.

Dropbox’s stock traded to a high of $23.04 and a low of $22.52 before closing the day at $22.92, a decrease of 1.12%.

Mentioned in this article:

Chefs’ Warehouse Inc. Nasdaq: CHEF

Dropbox Inc. Nasdaq: DBX

Enphase Energy Inc. Nasdaq: ENPH

Green Plains Inc. Nasdaq: GPRE

Halozyme Therapeutics Inc. Nasdaq: HALO

Spotify USA Inc. NYSE: SPOT

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