Morning Commentary: Applied Optoelectronics convertibles on tap; PG&E, Weibo open strong

By Abigail W. Adams

Portland, Me., Nov. 30 – While the convertibles primary market saw a slow start to the week, it stood poised to close it with $2.28 billion in new supply pricing.

In a wall-crossed offering, Applied Optoelectronics Inc. plans to price $80 million of three-year convertible notes.

The deal was largely limited to holders of the company’s 5% convertible notes due March 15, 2024, which will be repurchased or exchanged for cash and stock in privately negotiated transactions.

The refinancing deal is not expected to exceed the outstanding amount of the 2024 notes with terms not made widely available, a source said.

As one deal joined the calendar, two others cleared it.

PG&E Corp. priced an upsized $1.9 billion of four-year secured convertible notes after the market close on Wednesday and Weibo Corp. priced $300 million of seven-year convertible notes prior to the market open on Thursday.

Both deals played to strong demand during book building and were performing well on their aftermarket debut.

PG&E well-received

PG&E priced an upsized $1.9 billion of four-year secured convertible notes after the market close on Wednesday at par at the rich end of talk with a coupon of 4.25% and an initial conversion premium of 35%.

Price talk was for a coupon of 4.25% to 4.75% and an initial conversion premium of 30% to 35%.

The greenshoe was upsized to $250 million.

The initial size of the issue was $1.5 billion with a greenshoe of $225 million.

The offering was multiple times oversubscribed.

While the large upsize and tight pricing took some juice out of the deal, many were using a tighter credit spread to value the notes than underwriters.

The deal was marketed with assumptions of 300 basis points over SOFR and a 21% vol.

While the notes are secured and PG&E is a utility, the company is not high-grade and still carries junk ratings as it continues to recover from its 2019 bankruptcy.

However, the deal was very well received and putting in a strong aftermarket performance.

“They’re a great company, now,” a source said.

The new 4.25% convertible notes were changing hands in the 100.25 to 100.75 context with stock off early in the session.

They climbed to 101 as stock pared losses.

PG&E’s stock was trading at $17.14, a decrease of 0.15%, shortly before 11 a.m. ET.

Weibo cheap

Weibo priced $300 million of seven-year convertible notes prior to the market open on Thursday at par at the midpoint of talk with a coupon of 1.375% and an initial conversion premium of 35%.

Price talk was for a coupon of 1.125% to 1.625% and an initial conversion premium of 32.5% to 37.5%.

The overnight deal modeled double-digits cheap based on underwriters’ assumptions of 225 bps over SOFR and a 40% vol.

While the notes looked about 12 points cheap at the midpoint of talk, much of the cheapness was in anticipation of the drop in stock associated with overnight offerings, a source said.

However, the notes still modeled cheap with a 10% drop in equity factored in, the source said.

Weibo’s new notes were putting in a strong performance in the aftermarket.

They were wrapped around 102 with the company’s American Depositary Shares down 11%.

Weibo’s ADSs were trading at $9.94, a decrease of 12.19%, shortly before 11 a.m. ET.

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