Convertible primary active; secondary under pressure; Liberty Media offering on tap

By Abigail W. Adams

Portland, Me., March 1 – The primary market was active and the secondary market under pressure in the convertibles space on Thursday.

Two new deals brought $500 million of new paper into the market on Thursday with one new deal set to price after the market close. The new deals entered the convertible space as equity markets suffered steep declines after macro fears of a trade war were sparked by president Donald Trump’s proposal for steep tariffs on imported steel and aluminum.

RingCentral Inc.’s newly priced 0% convertible notes due 2023 dominated trading activity during Thursday’s session but were contracted on their market debut. While the deal initially looked attractive, it was “butchered” during pricing with revised price talk that fixed the coupon at 0%, market sources said.

Corium International Inc.’s newly priced 5% convertible notes due 2025 did not garner as much attention in the secondary market as RingCentral. The new notes, which priced in an overnight deal, were seen trading at 100.125 versus an equity price of $11.37, a decrease of about 12%, in scattered trading activity mid-afternoon.

Corium priced $100 million of seven-year convertible notes in an overnight deal with Cantor Fitzgerald & Co. as the bookrunner. It is Cantor’s first convertible bond deal since 2011 when Cantor served as a joint bookrunner for a convertible offering from its affiliate BGC Partners Inc.

Liberty Media Corp. plans to price $400 million of exchangeable senior debentures due 2048 after the market close on Thursday with price talk for a coupon of 1.875% to 2.125% and an exchange premium of 27.5% to 30%, according to a market source.

The deal is “another John Malone special,” a market source said. “He seems to do one of these every year.”

In the existing convertibles space, Colony NorthStar Inc.’s 3.875% convertible notes due 2021 were active during Thursday’s session, trading to a low of 91 and a high of 95.5 as the company’s stock tanked.

The notes have steadily spiraled downward since the start of year and have traded in the 94 to 98 range for much of February, according to Trace data.

Colony NorthStar released fourth-quarter and year-end reports prior to the market open Thursday and announced a dividend cut.

RingCentral contracts

RingCentral’s newly priced 0% convertible notes due 2023 dominated trading activity in the secondary market on Thursday although they contracted on their market debut.

RingCentral priced an upsized $400 million of five-year convertible notes after the market close on Wednesday with a fixed coupon of 0% and at the rich end of talk for an initial conversion premium of 30%.

Initial price talk had been for a coupon of 0% to 0.5% and an initial conversion premium of 25% to 30%.

Price talk was revised during the bookbuilding process with the coupon fixed at 0%, according to a market source.

Morgan Stanley & Co. LLC, Goldman Sachs & Co., Deutsche Bank Securities Inc. and BofA Merrill Lynch are the joint bookrunners for the Rule 144A deal, which carries an upsized greenshoe of $60 million.

The initial size of the deal had been $350 million with a greenshoe of $52.5 million.

The new notes were trading below par on their market debut. They were seen in a range of 98.5 to 99 early in Thursday’s session and at 99.375 to 99.75 later in the afternoon, according to market sources.

The notes were contracted about 0.75-point dollar neutral early in the session and contracted about 0.5 point two hours before the closing bell.

“They are contracted a little dollar neutral but it’s not terrible,” a market source said.

The notes dominated trading activity in the space although activity surrounding the notes slowed as the day progressed, a market source said. The notes accounted for about $99 million of the about $356 million in trading volume by dollar amount in play by mid-afternoon.

With a credit spread of 275 basis points over Libor and a 38% vol., the deal initially looked attractive, a market source said. However, the deal was “butchered” during pricing, a market source said.

The revised price terms with the fixed 0% coupon were pointed to as a source of pressure on the notes. RingCentral stock closed the day at $62.60, a decrease of 0.08%.

Corium’s deal

In an overnight deal, Corium priced $100 million of seven-year convertible notes prior to the market open Thursday at par with a coupon of 5% and an initial conversion premium of 32.5%.

Pricing came at the cheap end of talk for a coupon of 4.5% to 5% and within talk for an initial conversion premium of 30% to 35%.

Cantor Fitzgerald & Co. is the manager for the Rule 144A deal, which carries a greenshoe of $20 million.

The new 5% notes from the Menlo Park, Calif.-based commercial-stage biopharmaceutical company were not seen trading early in Thursday’s session.

There was scattered trading of the notes later in the afternoon with the notes seen at 100.125 versus an equity price $11.37.

Corium stock was volatile during Thursday’s session. The shares were down as much as 14.42% early Thursday but regained some footing and closed the day at $12.10, a decrease of 6.92%.

The decrease in Corium’s stock was not a surprise, a market source said. “If half the book was arbs, there were going to be a lot of shares for sale,” the source said.

The pricing of the notes looked appropriate, the source said.

While sources queried were not active in the name, several noted the deal was Cantor’s first convertible bonds deal as a sole bookrunner.

“And it’s in health care,” a market source said. “That’s interesting.”

Cantor was the bookrunner for Genocea Biosciences Inc.’s small offering of $1.6 million in series A convertible preferred stock, which priced alongside a $53.4 million common stock offering in mid-January.

Prior to that, Cantor had not served as a bookrunner on a convertible bond deal since 2011 when it was a joint bookrunner for affiliate brokerage firm BGC Partners’ 4.5% convertible notes due 2016.

Cantor recently assembled a team of well-known names in equity-linked capital markets origination, sales and trading to build out its presence in the convertibles space.

Liberty Media on tap

New paper from Liberty Media is set to debut on Friday. The Englewood, Colo.-based media conglomerate is planning to price $400 million of exchangeable senior debentures due 2048 after the market close on Thursday.

Price talk is for a coupon of 1.875% to 2.125% coupon and an exchange premium of 27.5% to 30%, according to a market source.

The new paper from Liberty Media is not a surprise with the company a repeated issuer of convertible notes.

The notes are convertible into either Sirius XM Holdings Inc. common stock, Liberty’s series C Liberty Sirius XM common stock, or a combination of both forms of stock and cash at the company’s option.

“Liberty is one of the great deal-making companies,” another source said. “Liberty does a phenomenal job of monetizing its stakes in media companies like Sirius XM.”

Liberty Media owns a 70% stake in Sirius XM Holdings, which is the parent company for satellite radio company Sirius XM Radio Inc.

Colony NorthStar active

Colony NorthStar’s 3.875% convertible notes due 2021 were active during Thursday’s session after the Los Angeles-based diversified equity REIT announced fourth-quarter and year-end results prior to the market open.

The 3.875% notes were trading in a range of 91 to 95.5, according to Trace data. Colony NorthStar stock closed the day at $6.00, a decrease of 22.88%.

Colony NorthStar reported a fourth-quarter net loss of $368.1 million, or 69 cents per share, and a net loss of $333.1 million, or 64 cents per share, for 2017. Colony NorthStar also announced a reduction in the quarterly dividend on common stock.

The board of directors authorized a dividend of 11 cents for the first-quarter targeting an annual dividend of 44 cents.

The dividend on common stock was 27 cents in the fourth-quarter and $1.05 for 2017.

Colony NorthStar’s 3.875% convertible notes have struggled since January when they dropped below par as the company stock underwent a sell-off amid concern of a dividend cut.

Mentioned in this article:

Colony NorthStar Inc. NYSE: CLNS

Corium International Inc. Nasdaq: CORI

Liberty Media Corp. Nasdaq: LTRPA

RingCentral Inc. NYSE: RNG

Sirius XM Holdings Inc. Nasdaq: SIRI

Liberty Sirius XM Group Series C Nasdaq: LSXMK

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