Morning Commentary: Xerox convertibles eyed; $4.38 billion in supply hits aftermarket

By Abigail W. Adams

Portland, Me., March 6 – The convertibles primary market continued to up the ante on what promises to be a historic week for new deal activity with one deal slated to price post-close after $4.375 billion cleared the calendar the previous session.

The deluge of deals that priced on Tuesday marked the highest volume day by face amount for new issuance since March 2, 2021 with the exercise of greenshoes promising to lift the tally to the highest volume day in more than one decade.

While there were concerns of indigestion, strong demand for new paper continued with Xerox Holdings Corp.’s $300 million offering of six-year convertible notes, which is slated to price post-close, also expected to do well.

The new paper from SoFi Technologies Inc., MicroStrategy Inc., Tandem Diabetes Care Inc., Kosmos Energy Ltd., LivaNova plc and Albemarle Corp. dominated activity in the secondary space with most deals making strong gains on debut.

Xerox on tap

Xerox plans to price $300 million of six-year convertible notes after the market close on Wednesday with price talk for a coupon of 4% to 4.5% and an initial conversion premium of 17.5% to 22.5%.

The deal was heard to be in the market with assumptions of 550 basis points over SOFR and a 38% vol.

The deal looked cheap with the borrow OK although there was a little squeeze on it on Wednesday as players established their hedges, a source said.

SoFi expands

SoFi priced a $750 million offering of five-year convertible notes after the market close on Tuesday at par with a coupon of 1.25% and an initial conversion premium will be 30%.

Pricing came at the midpoint of talk for a coupon of 1% to 1.5% and an initial conversion premium of 27.5% to 32.5%.

While a refinancing with proceeds to be used to redeem the company’s 12.5% series 1 preferred stock, proceeds were not used to refinance the convertible notes.

Instead, the company opted to issue stock to address its 0% convertible senior notes due 2026.

The company issued 61,713,287 shares of stock in separate privately negotiated exchange agreements for $600 million in principal of the 0% convertible senior notes due 2026.

The transactions were described as excellent liability management.

The new 1.25% convertible notes were putting in a strong performance in the aftermarket.

They traded as high as 101.5 on an outright basis and expanded about 1 point dollar-neutral, a source said.

SoFi’s stock was flat at $7.27 shortly before 11 a.m. ET.

Tandem volatile

Tandem Diabetes priced an upsized $275 million, from $250 million, of five-year convertible notes after the market close on Tuesday at par at the midpoint of talk with a coupon of 1.5% and an initial conversion premium of 27.5%.

Price talk was for a coupon of 1.25% to 1.75% and an initial conversion premium of 25% to 30%.

The notes saw large outright swings alongside stock in early trade.

They hit as high as 104.25 pre-open but came in to trade around par as stock sank early in the session.

However, the notes maintained a large dollar-neutral expansion and were up 2.5 to 3 points on hedge, a source said.

Stock saw about a 5% swing pre-open to early in the session, a source said.

“That’s pretty significant for a name like this,” the source said.

Tandem’s stock was changing hands at $26.96, a decrease of 0.53%, shortly before 11 a.m. ET.

LivaNova frenzy

LivaNova sold $300 million of five-year convertible notes after the market close on Tuesday at par with a coupon of 2.5% and an initial conversion premium of 32.5%.

Pricing came at the midpoint of talk for a coupon of 2.25% to 2.75% and at the rich end of talk for an initial conversion premium of 27.5% to 32.5%.

The notes traded as high as 103.25 early in the session but came in to trade around 101 as the session progressed.

“There was a little bit of a frenzy at the opening,” a source said.

While the notes were up as much as 3 points dollar-neutral at one point, they were trading with a 2-point expansion shortly before 11 a.m. ET.

LivaNova’s stock was trading at $51.67, a decrease of 1.36%, shortly before 11 a.m. ET.

MicroStrategy upsizes

MicroStrategy priced an upsized $700 million, from $600 million, of six-year convertible notes after the market close on Tuesday at par with a coupon of 0.625% and an initial conversion premium of 42.5%.

Pricing came toward the rich end of talk for a coupon of 0.5% to 1% and at the rich end of talk for an initial conversion premium of 37.5% to 42.5%.

Kosmos upsizes

Kosmos brought an upsized $350 million, from $300 million, of six-year convertible notes after the market close on Tuesday at par with a coupon of 3.125% and an initial conversion premium of 30%.

Pricing came toward the cheap end of talk for a coupon of 2.875% to 3.375% and at the midpoint of talk for an initial conversion premium of 27.5% to 32.5%.

Albemarle trades up

Albemarle priced an upsized $2 billion, from $1.75 billion, offering of three-year $50-par depositary shares representing a 1/20th interest in a share of $1,000-par series A mandatory convertible preferred stock after the market close on Tuesday at par with a dividend of 7.25% and a threshold appreciation premium of 20%.

Pricing came at the midpoint of talk for a dividend of 7% to 7.5% and a threshold appreciation premium of 17.5% to 22.5%.

The depositary shares were making large outright gains on a strong open for stock.

They were up 2 points outright to trade at $52 with stock up about 5%.

Albemarle’s stock was trading at $114.86, an increase of 4.99%, shortly before 11 a.m. ET.

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