Marriott Vacations, Two Harbors eyed; BridgeBio tanks; Cinemark convertibles soar

By Abigail W. Adams

Portland, Me., Jan. 27 – The convertibles primary market continued to roll out new deals on Wednesday, which was a wild day for equity markets.

In a crossover trade, Marriott Vacations Worldwide Corp., a frequent flyer in the high-yield market, was making its debut appearance in the convertibles market with a $500 million offering of five-year convertible notes.

The deal modeled cheap based on underwriters’ assumptions; however, some sources felt the credit spread was aggressive.

Two Harbors Investment Corp. priced a $250 million offering of five-year convertible notes after the market close.

While the deal looked cheap based on underwriters’ assumptions, it was heard to be wall-crossed.

Meanwhile, it was an action-packed day for the convertibles secondary space as equity benchmarks saw their worst session in months while retail traders continued to drive the equities of heavily-shorted names to astronomical levels, causing massive short-squeezes.

“The price swings are incredible,” a source said.

BridgeBio Pharma Inc.’s 2.25% convertible notes due 2029 dropped well below par and contracted dollar-neutral as stock cratered in the carnage in equity markets.

Cinemark Holdings Inc.’s 4.5% convertible notes due 2025 soared on an outright basis in active trading as stock shot up more than 32% in intraday activity – the product of a short squeeze.

While volume was light, Accelerate Diagnostics Inc.’s long-busted 2.5% convertible notes due 2023 also shot up more than 18 points outright as stock rocketed up 25%.

Marriott’s debut

Marriott Vacations plans to price $500 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

The deal was heard to be marketed with assumptions of 400 basis points over Libor and a 38% vol., according to a market source.

Using those assumptions, the deal looked 2.5 points cheap at the midpoint of talk.

However, the credit spread seemed aggressive, a source said.

Marriott Vacations’ stock was under pressure on the heels of the convertible notes offering with stock closing the day at $122.15, a decrease of 10.77%.

Two Harbors wall-crossed

Two Harbors priced $250 million of five-year convertible notes after the market close on Wednesday at par at the midpoint of talk with a coupon of 6.25% and an initial conversion premium of 20%, according to a company news release.

Price talk was for a coupon of 6% to 6.5% and an initial conversion premium of 17.5% to 22.5%, according to a market source.

The deal was heard to be marketed with assumptions of 600 bps over Libor and a 20% vol., which looked 1.41 points cheap at the midpoint of talk, a source said.

However, the small offering was heard to be wall-crossed.

Proceeds from the offering will be used to repurchase the company’s 6.25% convertible notes due 2022 in open market or privately negotiated transactions.

The REIT priced a $287.5 million issue of the 6.25% notes in 2017.

There were a few odd-lot trades of the notes at 102.5 on Wednesday, according to Trace data.

BridgeBio tanks

BridgeBio’s newly priced 2.25% convertible notes due 2029 tanked on an outright basis and gave back some of their dollar-neutral gains their second day in the secondary space.

The 2.25% notes were changing hands at 96.25 bid, 97 offered versus a stock price of $56.50 late Wednesday afternoon.

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

BridgeBio’s stock traded to a high of $60.87 and a low of $55.19 before closing the day at $55.47, a decrease of 11.01%.

Stock was taking a hit alongside the broader market as the risk-on atmosphere that rocketed equity benchmarks to all-time highs began to dissipate.

BridgeBio’s newly priced convertible notes were initially off to a strong start in the secondary space.

They traded as high as 104 on their aftermarket debut on Tuesday before settling into a 101.5 to 102 context.

While the notes contracted on Wednesday, they still held onto the majority of dollar-neutral gains seen on Tuesday when they were up 2.5 to 3 points dollar-neutral.

The short-squeeze

While the broader markets sold off on Wednesday amid concern about a slower economic recovery than previously anticipated, the equities of some convertible issuers skyrocketed due to short-squeezes.

Retail traders and short-sellers have been engaged in an epic battle over the past few sessions with retail traders largely responsible for the skyrocketing prices of stocks from companies such as GameStop and AMC Entertainment Holdings Inc.

As retail traders take aim at several other heavily shorted names, short-sellers have exited their positions, causing a short-squeeze that have propelled the stocks even higher.

Cinemark was among the names that saw such a short-squeeze on Wednesday, causing its 4.5% convertible notes due 2025 to also rocket higher on an outright basis.

The 4.5% notes ran up as much as 30 points outright with stock up almost 30% early in the session.

The notes were changing hands at 198 in early trading before drifting back to 177 in the late afternoon as stock came in.

More than $25 million of the bonds were on the tape during Wednesday’s session.

Cinemark’s stock traded to a high of $27.84 and a low of $21.40 before closing the day at $22.02, an increase of 4.91%.

While volume was light, Accelerate Diagnostics’ 2.5% convertible notes due 2023 also shot up due to a short-squeeze.

The long-busted convertible notes jumped almost 18 points outright to 77 in the late afternoon.

Accelerate Diagnostics’ stock traded to a high of $15.60 and a low of $13.80 before closing the day at $15.00, an increase of 24.96%.

Mentioned in this article:

Accelerate Diagnostics Inc. Nasdaq: AXDX

BridgeBio Pharma Inc. Nasdaq: BBIO

Cinemark Holdings Inc. NYSE: CNK

Marriott Vacations Worldwide Corp. NYSE: VAC

Two Harbors Investment Corp. NYSE: TWO

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