Morning Commentary: Market eyes Vishay, Mindbody; Twitter dominates; Avaya expands

By Abigail W. Adams

Portland, Me., June 7 – The convertibles secondary market was active early in Thursday’s session with $1.3 billion of new paper hitting the space and $725 million set to debut on Friday.

Twitter Inc.’s newly priced 0.25% convertible notes due 2024 accounted for half of the total trading volume early in Thursday’s session with the bonds accounting for $109 million out of the $218 million on the tape early in the session.

The 0.25% notes were “trading close to home,” on an outright basis but were up about 0.5 point dollar neutral with stock off, sources said.

Avaya Holdings Corp.’s newly priced 2.25% convertible notes due 2023 were also active with $34 million of the bonds traded early in the session. The notes were seen up about 0.25 point dollar neutral, a market source said.

As the secondary market worked to digest new paper from Twitter and Avaya, new deals in the pipeline from Vishay Intertechnology, Inc. and Mindbody Inc. were also eyed.

Twitter dominates

Twitter’s new 0.25% convertible notes due 2024 dominated trading activity in the secondary market with the notes expanding dollar neutral although they hovered around par on an outright basis.

Twitter priced $1 billion of six-year convertible notes after the market close on Wednesday with a coupon of 0.25% and an initial conversion premium of 42.5%.

Pricing came in line with price talk for a coupon of 0.125% to 0.625% and at the midpoint of talk for an initial conversion premium of 40% to 45%, according to a market source.

The convertible notes offering debuted in the secondary market as Twitter stock made its entrance into the S&P 500.

The notes hovered around par and were seen trading between 100.25 and 99.5 with stock down between 30 cents and $1 early in the session.

The notes were up about 0.5 point dollar neutral, a market source said.

Avaya expands

Avaya’s new 2.25% convertible notes due 2023 were making gains on an outright and dollar-neutral basis on their secondary market debut.

Avaya priced $300 million of five-year convertible notes after the market close on Wednesday at the midpoint of talk with a coupon of 2.25% and an initial conversion premium of 30%.

Price talk was for a coupon of 2% to 2.5% and an initial conversion premium of 27.5% to 32.5%.

The notes were seen trading between 100.5 and 101 with the stock up early in the session, sources said. They expanded about 0.25 point dollar neutral, a market source said.

Avaya’s 2.25% convertible notes were second only to Twitter in trading activity with $37 million of the bonds on the tape early in the session.

Vishay eyed

Vishay’s $525 million offering of seven-year convertible notes looks 2 to 4 points cheap, which may be an effort to entice holders of the semiconductor company’s outstanding convertible notes to sell them back to the company, a market source said.

Price talk for the offering is for a coupon of 2.5% to 3% and an initial conversion premium of 22.5% to 27.5%.

The deal is being marketed with a credit spread of 300 basis points over Libor and a 28% vol., sources said.

The deal looked to be about 2 to 2.5 points cheap based on underwriters’ assumptions and up to 4 points cheap with a tighter credit spread, a market source said.

It is rare in the current environment for deals to come as cheap as Vishay’s offering, a market source said.

Proceeds will be used to repurchase a portion of the company’s outstanding convertible debentures due 2040, 2041 and 2042 through individually negotiated agreements with a limited number of holders, according to a company news release.

“If that’s what they’re doing, they have to give [holders] a kiss on the new deal,” a market source said.

Vishay’s outstanding convertible notes currently trade in the 150 to 170 range and are non-callable, the source said.

Mindbody eyed

Mindbody’s $200 million offering of five-year convertible notes models out to fair value “at best,” a market source said.

Price talk is for a coupon of 0.125% to 0.625% and an initial conversion premium of 27.5% to 32.5%. The deal is being marketed with a credit spread of 300 bps over Libor and a 38% vol.

However, Mindbody went public in 2015 and has no real history, a market source said.

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