Allscripts Healthcare convertible notes hit the market, trade tight; RH gains outright

By Abigail W. Adams

Portland, Me., Dec. 5 – The convertible secondary space opened Thursday with new paper in the market.

Allscripts Healthcare Solutions, Inc.’s newly priced 0.875% convertible notes due 2027 dominated activity in the secondary space with the notes trading in a tight range.

While 2019 has been a record-setting year for convertible issuance, new deal activity is expected to wind down into the final weeks of the year.

There may be a few deals during the Dec. 9 week, a market source said. However, most companies that needed to raise capital would have done so already.

Several convertibles issuers are also starting to take advantage of attractive pricing in the high-yield market in the final stretch of 2019.

Twitter Inc. made its debut appearance in junkbondland on Thursday with a highly sought after $600 million straight debt offering.

Dycom Industries, Inc. is also in the market with a junk bond, which will be used to repurchase a portion of its 0.75% convertible notes due 2021.

Outside of the new paper, it was the usual suspects on the tape, sources said.

RH Holdings Inc., formerly Restoration Hardware Inc., saw renewed attention on Thursday as stock soared following a strong earnings report.

While the convertible notes gained on an outright basis alongside stock, they were unchanged on a dollar-neutral, or hedged, basis.

Allscripts trades tight

Allscripts priced $200 million of seven-year convertible notes after the market close on Wednesday at par to yield 0.875% with an initial conversion premium of 32.5%.

Pricing came toward the rich end of talk for a coupon of 0.75% to 1.25% and at the midpoint of talk for an initial conversion premium of 30% to 35%, according to a market source.

The new paper was in focus in the secondary space. However, the notes were trading in a tight range.

The 0.875% notes were changing hands between 100.25 and 100.75 with stock largely unchanged early in the session, a market source said.

The notes were trading between par and 100.25 later in the afternoon with stock off slightly.

There was a good mix of outright and hedge trading activity. However, the notes were unchanged to up slightly dollar-neutral, sources said.

The notes dominated activity in the secondary space with about $80 million in reported volume by the late afternoon.

Sources diverged about the attractiveness of the deal.

While it modeled cheap using underwriters’ assumptions of 325 basis points over Libor and a 34% vol., some felt the credit spread was too tight given the amount of debt the health care technology company carried.

While Allscripts’ newly priced convertible notes were in focus, the company’s outstanding 1.25% convertible notes due July 1, 2020 were not active.

With proceeds from the new offering being used to retire the senior secured revolving loan facility, the company will still have to raise funds to deal with the soon-to-mature 1.25% notes, which have about $345 million outstanding, a source said.

Allscripts stock traded to a low of $9.935 and a high of $10.16 before closing the day at $10.20, a decrease of 0.3%.

Crossover

Some well-known convertible debt issuers are taking advantage of attractive pricing in the high-yield market in the final weeks of the year.

In a highly sought after offering, Twitter priced an upsized $700 million issue of eight-year bullet notes at par to yield 3 7/8% on Thursday.

The deal was heard to be as much as 4x oversubscribed with pricing tightening from initial talk of a yield in the mid-4% area.

However, the bonds were hovering around their issue price after breaking for trade with most prints at par ¼, sources said.

The opportunistic capital raise took advantage of tight pricing in the high-yield market with several strong credits pricing on a 4% handle in recent weeks.

Moody’s Investors Service assigned a Ba2 rating and S&P Global Ratings a BB+ rating to Twitter’s notes.

While Twitter priced a straight debt offering, the social networking site’s 1% convertible notes due 2021 saw some activity with about $5 million in reported volume.

However, the notes were largely unchanged at 97.125 versus an equity price of $30.31, according to a market source.

Dycom Industries is also marketing a $300 million offering of eight-year senior notes with pricing expected on Friday.

Proceeds will be used to repurchase up to $275 million of the specialty contracting services’ 0.75% convertible notes due 2021 in privately negotiated transactions.

While volume was light, Dycom’s 0.75% notes also saw some activity on Thursday. The notes traded up about 1 point to 98.125, according to Trace data.

RH up outright

RH’s recently priced 0% convertible notes due 2024 saw renewed attention on Thursday with the notes gaining on an outright basis alongside stock.

However, the notes were largely flat dollar-neutral.

The 0% notes rose almost 8 points outright to 122.875, according to a market source. With $14 million in reported volume, the notes were among the most actively traded in the secondary space.

RH’s 0% convertible notes due 2023 were also active and gained about 13 points to 133.75.

The notes were moving in tandem with stock, which rose more than 10% during Thursday’s session.

RH stock traded as low as $209.15 and as high as $233.17 before closing the day at $233.17, an increase of 13.4%.

Stock soared following strong third-quarter earnings and a raised outlook.

RH reported earnings per share of $2.79 on revenue of $677 million. Analysts expected earnings per share of $2.23 on revenue of $676 million.

RH stock has steadily gained since Warren Buffet’s Berkshire Hathaway announced in mid-November that it was increasing its stake in the furniture retail company.

Mentioned in this article:

Allscripts Healthcare Solutions, Inc. Nasdaq: MDRX

Dycom Industries, Inc. NYSE: DY

Twitter Inc. NYSE: TWTR

RH Holdings Inc. NYSE: RH

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