PRA Group’s new convertible issue takes focus; ServiceNow’s 0% notes slip ahead of new issue

By Stephanie N. Rotondo

Seattle, May 23 – The convertible bond primary market was once again in focus on Tuesday as PRA Group Inc. priced its $300 million offering of six-year convertible senior notes.

The Rule 144A deal came at par to yield 3.5% with an initial conversion premium of 35%. That was smack in the middle of the 3.25% to 3.75% yield talk and the 32.5% to 37.5% premium talk.

BofA Merrill Lynch and SunTrust Robinson Humphrey Inc. ran the books.

A trader saw the new issue trading “just over 101,” placing the paper in a 101.375 to 101.5 context.

“It’s basically a point premium on pricing,” he said. “People thought they would do a little better than that.”

Still, he added that the issue was trading actively.

“Probably half of the issue has turned over already,” he said at mid-morning.

PRA’s 3% convertible notes due 2020 waned slightly on the heels of the new issue, slipping almost a point to trade around 94.75, a market source reported.

As for the company’s stock, it improved during the session, rising 95 cents, or 2.77%, to $35.20.

The convertible notes are contingently convertible prior to March 1, 2023. After that date, the issue can be converted at any time.

The conversion rate is 21.6275 shares per each $1,000 of notes, equal to a conversion price of $46.24 a share.

The company can redeem the issue on or after June 1, 2021 – but only if the stock hits a 130% price hurdle – at a cash price of par plus accrued interest.

A portion of the proceeds will be used to repurchase $45 million of common stock. Another $246.6 million will also be used to repay debt outstanding under a North American revolving credit facility.

Meanwhile, ServiceNow Inc.’s 0% convertible notes due 2018 were trading as the market prepared for the company’s own new issue to price.

A trader said the convertible bonds “trade strictly on swap,” seeing the paper falling about 1.5 points to 140.5.

“That’s to be expected since the stock is down,” he said.

The 0% convertibles rebounded a tad by the bell, nearing the 141 mark.

The underlying equity was off about 1% in early trading but finished the day down just 6 cents at $101.64.

The Santa Clara, Calif.-based cloud computing company said late Monday that it was offering $750 million of five-year convertible notes. The proceeds will be used in part to redeem or repurchase the 0% convertibles.

As of 6 p.m. ET, details on the new issue were not yet available.

But the deal flow didn’t stop there. After Tuesday’s close, LendingTree Inc. announced a $200 million Rule 144A offering of convertible senior notes due 2022.

Price talk is for a 0.5% to 1% yield with an initial conversion premium of 27.5% to 32.5%, according to a market source.

BofA Merrill Lynch, Goldman Sachs & Co., RBC Capital Markets and SunTrust Robinson Humphrey are running the deal.

Prior to Feb. 1, 2022, the bonds are contingently convertible if the stock hits a 130% price hurdle. After that date, the paper can be converted at any time.

Proceeds will be used, in part, to cover the cost of the hedging transactions. The remaining fees will be used for general corporate purposes, including working capital and potential acquisitions.

Ahead of the deal’s announcement, LendingTree’s equity was at $157.60, a gain of 85 cents for the day.

Mentioned in this article:

PRA Group Inc. Nasdaq: PRAA

ServiceNow Inc. NYSE: NOW

LendingTree Inc. Nasdaq: TREE

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