HCI on tap; convertibles secondary ‘treacherous’; Workday in focus; Coinbase volatile

By Abigail W. Adams

Portland, Me., May 18 – While Wednesday marked another brutal day for risk assets, the convertibles primary market reared its head with one new offering in the works.

HCI Group Inc. plans to price $150 million in convertible notes due 2042 before the market open on Thursday.

The deal looked cheap based on underwriters’ assumptions; however, given the current market climate, the deal would have to come cheap, a source said.

Meanwhile, losses continued to mount in the secondary space as equity indexes cratered after a strong session on Tuesday.

The Dow Jones industrial average closed Wednesday down 1,165 points, or 3.57%, the S&P 500 index closed down 4.04%, the Nasdaq Composite index closed down 4.73% and the Russell 2000 index closed down 3.56%.

While equity markets rallied following Federal Reserve chair Jerome Powell’s hawkish comments on Tuesday, they collapsed and credit widened after the market further digested them.

“The back and forth ... it’s treacherous,” a source said.

“This is definitely a bear market,” another source said.

While traditional volatility is a boon to the convertibles asset class, there were few winners in the space with the volatility shocks of the current market.

Peloton Interactive Inc., a one-time winning trade in the convertibles secondary, priced a $750 million five-year senior secured term loan on Tuesday which carries a yield roughly equal to its 0% convertible notes due 2026, a source said.

The 0% convertible notes have been hovering around 70 in the secondary market with a yield of 9.75%.

“The yield for a convertible is about the same as a secured piece of paper,” a source said. “Convertibles are definitely being heavily offered.”

The secondary space was active on Wednesday with $144 million on the tape about one hour after the opening bell and $734 million on the tape about one hour before the market close.

Workday Inc.’s 0.25% convertible notes due Oct. 22, 2022 were in focus with the notes down outright alongside stock.

Coinbase Global Inc.’s 0.5% convertible notes due 2026 also continued to see heavy volume with the notes volatile alongside stock.

BofA Finance LLC’s 0.25% cash-settled equity-linked notes due May 1, 2023 tied to Voya Financial, Inc. and BofA Finance’s 0.125% cash-settled notes tied to Charter Communications Inc. due Sept. 1, 2022 also saw large trades during Wednesday’s session.

HCI on tap

HCI plans to price $150 million in convertible notes due 2042 before the market open on Thursday with price talk for a coupon of 4.25% to 4.75% and an initial conversion premium of 25% to 30%.

The notes are non-callable until June 5, 2025 and are then redeemable for cash subject to a 130% hurdle.

They are putable at par on June 1, 2027, June 1, 2032 and June 1, 2037.

The deal was heard to be in the market with assumptions of 500 bps over Libor and a 37% vol., according to a market source.

Using those assumptions, the deal looked almost 8 points cheap at the midpoint of talk.

However, given the current market climate, any deal would have to come cheap, a source said.

Workday in focus

Workday’s 0.25% convertible notes due Oct. 22, 2022 were in focus with the short-duration notes down outright alongside stock.

The notes were down another 2.5 points outright with stock off almost 7%.

The 0.25% notes were changing hands at 117 versus a stock price of $163.24 in the late afternoon, according to a market source.

The short-duration notes were largely moving in line dollar-neutral and trading with a 6 point premium to parity.

There was $34 million in reported volume.

Workday’s stock traded to a high of $172.28 and a low of $161.62 before closing the day at $162.95, a decrease of 5.99%.

Workday’s stock continued on a strong downtrend on Wednesday with several analysts cutting the software company’s price target ahead of its May 26 earnings report.

The short-duration notes have fallen 38 points outright in the past month as Workday’s stock dropped 21%.

Coinbase volatile

Coinbase’s 0.5% convertible notes due 2026 remained volatile in heavy volume on Wednesday as stock wavered between gains and losses.

The 0.5% notes were up outright early in the session.

The notes gained 1.25 points outright to trade at 67.75 versus a stock price of $70.47.

However, they were back on a 66-handle heading into the close as the sell-off in equities accelerated.

The 0.5% notes were changing hands at 66 versus a stock price of $63.60 in the late afternoon.

There was $29 million in reported volume.

Coinbase’s stock traded to a low of $61.94 and a high of $71.81 before closing the day at $63.03, a decrease of 9.96%.

Coinbase’s convertible notes and stock have logged large gains and losses since its May 10 earnings report.

The convertible notes traded as low as 53 post-earnings. However, they have been on an upswing on an outright and dollar-neutral basis as stock bounced off its lows.

BofA synthetics trade

BofA’s short-duration cash-settled equity linked notes saw some action on Wednesday with the notes changing hands as their maturity approaches.

BofA’s 0.25% cash-settled equity-linked notes due May 1, 2023 tied to Voya Financial were changing hands at 105.75 versus an equity price of $64.90 early in the session.

There were two large trades of $5 million plus on the tape.

Voya’s stock traded to a high of $65.65 and a low of $64.26 shortly before closing the day at $64.90, a decrease of 0.58%.

BofA’s 0.125% cash-settled notes tied to Charter due Sept. 1, 2022 were also active.

The notes changed hands at 99.50 versus a stock price of $477.50 in the early afternoon.

There were also two large trades of $5 million plus on the tape.

Charter’s stock traded to a high of $480.83 and a low of $463.32 before closing the day at $469.50, a decrease of 0.56%.

Mentioned in this article:

Coinbase Global Inc. Nasdaq: COIN

Charter Communications Inc. Nasdaq: CHTR

HCI Group Inc. NYSE: HCI

Peloton Interactive Inc. Nasdaq: PTON

Voya Financial, Inc. NYSE: VOYA

Workday Inc. Nasdaq: WDAY

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