Convertibles market eyes DexCom, Electronics for Imaging, Liberty Media offerings

By Abigail W. Adams

Portland, Me., Nov. 27 – While markets remain volatile, the convertibles primary market continued to test the waters with three deals on deck.

Electronics For Imaging Inc. planned to price $130 million of five-year convertible notes, DexCom Inc. planned to sell $750 million of five-year convertible notes and Liberty Media Corp. planned to price $350 million of exchangeable debentures due 2048 after the market close on Tuesday.

While DexCom was seen at fair value, Electronics For Imaging and Liberty Media’s offerings were seen as cheap based on underwriters’ assumptions.

There are about three weeks left in the fourth quarter for new deal activity.

Meanwhile, secondary trading was light with few names seeing significant movements, a market source said.

“Everyone’s focused on the new deals,” the source said.

Primary eyed

After a record-setting second and third quarter for new deal activity, primary market activity has slowed in the fourth quarter amid the volatility in equities and the back up in credit.

The pricing and secondary market performance of the three deals set to price after the market close on Tuesday will largely determine primary market activity for the remainder of the year, a market source said.

“This will be a good gage if we can get deals done,” the source said.

Market conditions have caused two prospective issuers to withdraw their offerings over the past two weeks, as the sell-off in equities spilled into credit.

If the deals on tap perform well, there will most likely be additional new deal activity before the fourth quarter comes to a close.

However, if the deals struggle, prospective issuers may wait until the next window of opportunity to launch their offerings, which will be in 2019.

DexCom looks fair

DexCom planned to price $750 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.25% to 0.75% and an initial conversion premium of 32.5% to 37.5%.

The deal was heard to be marketed with a credit spread of 275 basis points over Libor and a 40% vol., according to a market source.

The deal appeared to be fair value at the midpoint of talk, sources said.

The borrow on the stock “was a little funky” on Tuesday, a market source said.

However, it was primarily because of the demand caused by the convertible notes offering with the borrow expected to improve, the source said.

The deal is a large one. However, DexCom has an $11 billion market cap and should be able to support the offering, a source said.

The manufacturer of glucose monitoring systems is a repeat issuer of convertible notes.

The company’s stock has more than doubled since it priced its 0.75% convertible notes due 2022 in May 2017.

“They’re the premiere name in the space,” a market source said. “It’s a growth area.”

As DexCom’s new offering was in the works, the company’s outstanding 0.75% convertible notes were among the most actively traded issues in the secondary space.

The notes were seen trading at 138.25 versus an equity price of $125.46 in the late afternoon, according to a market source.

About $15 million of the bonds had changed hands during Tuesday’s session.

DexCom stock closed Tuesday at $123.99, a decrease of 1.59%.

Electronics For Imaging

Electronics For Imaging planned to sell $130 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 1.75% to 2.25% and an initial conversion premium of 30% to 35%.

The deal was heard to be marketed with a credit spread of 350 bps over Libor and a 40% vol., according to a market source.

The deal modeled 4.87 points cheap at the midpoint of talk, a source said.

Another source pegged the deal 2.5 points to 4 points cheap.

The digital printing technology company is a solid name that is well known in the convertibles space, a market source said.

The use of proceeds includes the repayment of the company’s 0.75% convertible notes due Sept. 1, 2019 at maturity.

Electronics For Imaging’s 0.75% convertible notes were up about 0.25 point on an outright basis to 97.8, according to Trace data.

Stock closed Tuesday at $27.46, a decrease of 0.58%.

Liberty Media to price

Liberty Media plans to price $350 million of exchangeable debentures due 2048 after the market close on Tuesday with price talk for a coupon of 1.25% to 1.75% and an initial exchange premium of 27.5% to 32.5%.

The debentures are exchangeable into shares of Live Nation Entertainment, Inc.

The deal was heard to be marketed with a credit spread of 225 bps over Libor and a 30% vol., according to a market source.

The deal modeled about 1.71 points cheap at the midpoint of talk, a source said.

Another source pegged the deal between 1 point and 2 points cheap.

“This is a good one,” a source said. “These always do well.”

Liberty Media is a familiar name in the convertibles space with market sources dubbing the offerings from the media conglomerate the “John Malone special.”

Liberty Media priced a $400 million issue of 2.125% exchangeables due 2048 in March with the notes convertible into either Sirius XM Holdings Inc. common stock or Liberty’s series C Liberty SiriusXM common stock.

Subsidiary Live Nation Entertainment also priced a $500 million issue of 2.5% convertible notes due 2023 in March.

The 2.5% convertible notes were active in the secondary space on Tuesday with the new deal in the works.

The notes were seen trading at 105.625 versus an equity price of $52.77 in the late afternoon with about $8 million of the bonds on the tape, according to a market source.

Mentioned in this article:

Electronics For Imaging Inc. Nasdaq: EFII

DexCom Inc. Nasdaq: DXCM

Live Nation Entertainment, Inc. NYSE: LYV

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