Nevro on tap; Carnival convertible notes in demand, talk tightens; DISH notes improve

By Abigail W. Adams

Portland, Me., April 1 – The convertibles primary market returned to action with the first new convertible deal since early March set to price after the market close on Wednesday and another overnight deal set to price prior to the market open on Thursday.

The activity comes despite the dramatic extension of losses into the second quarter for equity markets.

Nevro Corp. plans to price $165 million of five-year convertible notes prior to the market open on Thursday with price talk for a coupon of 2.75% to 3.25% and an initial conversion premium of 22.5% to 27.5%, according to a market source.

Morgan Stanley & Co. LLC is the bookrunner for the registered offering, which carries a greenshoe of $24.75 million.

Proceeds will be used, in part, to repurchase and retire the global medical device company’s outstanding 1.75% convertible notes due 2021.

Carnival Corp., a Miami cruise ship operator that has been badly battered by the coronavirus pandemic, will be the first company to tap the convertibles market as part of a $6.5 billion capital raise.

While some sources expressed skepticism about the deal, Carnival’s $1.75 billion offering of three-year convertible notes saw heavy demand during bookbuilding with talk tightening.

Meanwhile, trading volume was light in the secondary space as equity markets plunged into the new quarter following a grim forecast about the continued humanitarian and economic toll of the coronavirus.

The Dow Jones industrial average closed the day down 4.44%, the S&P 500 closed down 4.41% and the Nasdaq Composite ended down 4.41%.

There was $47 million in reported volume about one hour into Wednesday’s session and $273 million heading into the afternoon.

The lack of trading activity given the sell-off in equities was a surprise to some sources.

DISH Network Corp.’s 2.375% senior notes due 2024 were major volume movers with the notes improving following the completion of T-Mobile’s acquisition of Sprint.

Spirit Realty Capital Inc.’s 3.75% convertible notes due 2021 were also active although the notes were largely unchanged on an outright basis.

Carnival tightens talk

Carnival’s $1.75 billion offering of three-year convertible notes, which is slated to price after the market close, saw heavy demand during bookbuilding with price talk for the deal tightening, sources said.

Revised talk is for a coupon of 5.5% to 5.75% and an initial conversion premium of 22.5% to 25%, according to a market source.

Initial talk was for a coupon of 5.75% to 6.25% and an initial conversion premium of 17.5% to 22.5%.

The deal is being marketed with assumptions of 1,400 bps over Libor and a 40% vol., which modeled a little over 8 points cheap at the midpoint of initial price talk, sources said.

While not as cheap as the initial talk, the convertibles deal is still extremely attractive if the leisure travel company is able to reboot its business in the next year or two, a source said.

However, there are several unknowns weighing on the offering, such as the extent of the impact of the coronavirus on the company’s fundamentals.

Carnival is also registered in Panama, which is why the company has been forced to tap capital markets for “rescue financing,” a market source said.

It is not eligible to receive relief through Congress’ stimulus package.

However, if the company goes bankrupt, the bankruptcy will be handled by Panamanian law.

“Who knows what rules apply in Panama,” a source said.

Despite the skepticism, the deal was optically very attractive, and convertible investors were hungry for new paper, which they have not had since March 4.

Concurrently with the convertible notes, Carnival is pricing a secondary offering of common stock and straight debt.

Carnival’s offering of three-year first priority senior secured notes also saw heavy demand with the deal upsized to $4 billion from $3 billion.

A euro-denominated tranche was removed from the offering.

The straight debt was talked with a coupon of 12% and a reoffer price of 99. The notes later launched with an 11.5% coupon at 99.

The offering was heard to be as much as 4x oversubscribed with distressed debt accounts lining up for allocations.

However, Carnival’s secondary offering of common stock was downsized to $750 million from $1.25 billion.

Carnival stock was taking a beating on Wednesday and closed the day at $8.80, a decrease of 33.11%.

DISH improves

DISH Network’s 2.375% senior notes due 2024 were active on Wednesday with the notes improved following the completion of T-Mobile’s acquisition of Sprint.

The notes were changing hands at 81 early in the session and traded as high as 82 in the late afternoon with stock down more than 7%.

The notes were gaining dollar-neutral, a market source said.

DISH stock traded to a low of $18.07 and a high of $19.23 before closing the day at $18.70, a decrease of 6.45%.

With T-Mobile’s acquisition of Sprint complete, DISH is now poised to become the U.S.’s fourth-largest mobile phone operator.

However, the broadcast satellite provider will need a backer to launch the network.

There is widespread speculation the backer will have deep pockets, a source said.

Spirit Realty active

Spirit Realty’s 3.75% convertible notes due 2021 saw high-volume activity on Wednesday with short-duration, investment-grade paper again in focus as equities plummeted.

The 3.75% convertible notes were changing hands between 93 and 94 during Wednesday’s session with more than $10 million in reported volume, according to a market source.

The yield on the notes was 9% to 10%.

While largely unchanged day to day, the notes were trading around 107 in the first week of March.

Spirit Realty, a REIT focused on investments in single-tenant, operationally essential real estate, saw its stock nosedive during Wednesday’s session.

Stock traded as low as $21.88 before closing the day at $22.89, a decrease of 12.40%.

REIT’s in the convertibles space have been especially hard hit over the past few weeks with widespread mortgage defaults and delinquent tenants an expected consequence of the economic shutdown.

Mentioned in this article:

Carnival Corp. NYSE: CCL

DISH Network Corp. Nasdaq: DISH

Nevro Corp. NYSE: NVRO

Spirit Realty Capital Inc. NYSE: SRC

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