II-VI’s mandatory convertible preferreds eyed; second-quarter issuance breaks records

By Abigail W. Adams

Portland, Me., June 30 – While the convertibles primary market has slowed its pace, there will be new paper during the truncated holiday week.

II-VI Inc. plans to price $400 million, or 2 million shares, of three-year par of $200 series A mandatory convertible preferred stock after the market close on Wednesday.

The deal looked cheap based on underwriters’ assumptions although there were some unique features to the deal, sources said.

While new deal activity has been subdued over the past two days, the convertibles primary market logged a record-setting second quarter with roughly the same amount of issuance in the past three months as there was in 2019.

Meanwhile, volume was relatively light in the secondary space as market players took care of end-of-month and end-of-quarter business, a source said.

There was about $87 million in reported volume a little over one hour into Tuesday’s session and $441 million in reported volume about one hour before the close.

While few names saw concentrated trading activity, there were some large movements in the space as books closed on a historic second-quarter, a source said.

Bilibili Inc.’s 1.25% convertible notes due 2027 were making gains on an outright basis.

While the small illiquid issue was not active, Gogo Inc.’s 6% convertible notes due 2022 continued to recover with the notes up more than 40 points from their lows.

II-VI eyed

II-VI plans to price $400 million, or 2 million shares, of three-year par of $200 series A mandatory convertible preferred stock after the market close on Wednesday with price talk for a dividend of 5.75% to 6.25% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

The deal was heard to be marketed with assumptions of 450 basis points over Libor and a 45% to 41% vol. skew.

Using those assumptions, the deal modeled out to $208.42 at the midpoint of talk, which looked 4.125 points cheap on a $100-par name, a source said.

The $200-par liquidation preference is unusual and will deter some investors from participating in the deal, another source said.

However, with the offering registered, as mandatory preferreds usually are, the offering will be open to retail accounts in addition to QIBs.

The offering is pricing concurrently with a $350 million common stock offering.

With proceeds from the concurrent offerings to be used to repay borrowings under the company’s credit agreement, the optoelectronics components maker was most likely trying to reduce its leverage so it could price straight debt in the future, a source said.

Quarter sets record

While new deal activity has been subdued over the past two days, the convertibles primary market has logged a record-setting second quarter.

In the past three months, $58.09 billion has priced over 95 deals.

That amount is on par with the $58.37 billion that priced in 2019 and the highest volume second-quarter since at least 2001, which was the inception of Prospect News’ database.

Year to date, $73.88 billion has priced over 123 deals with 2020 already claiming the title as the best year for convertibles issuance since the global finance crisis.

Bilibili gains

Bilibili’s 1.25% convertible notes due 2027 were making gains on an outright basis in active trading on Tuesday.

The 1.25% notes rose about 4 points to 130.

The Chinese video-streaming service’s ADS traded to a low of $45.30 and a high of $47.90 before closing the day at $46.32, an increase of 1.8%.

Bilibili priced an $800 million issue of the 1.25% convertible notes in late May.

The notes saw a lackluster reception on their secondary market debut, dropping below par and contracting dollar-neutral.

However, the notes broke out alongside their equity in mid-June.

Gogo recovers

Gogo’s 6% convertible notes due 2022 continued to recover on Tuesday after largely being written off just a few months ago.

While the issue is illiquid, the notes traded up to the 70s.

Gogo stock traded to a low of $2.69 and a high of $3.17 before closing the day at $3.16, an increase of 14.08%.

The provider of in-flight broadband service’s stock shot up following a report that its business aviation segment is poised for a rebound.

Gogo’s 6% convertible notes were trading in the 28 to 29 range at their lows following the March sell-off, a market source said.

Mentioned in this article:

Bilibili Inc. Nasdaq: BILI

Gogo Inc. Nasdaq: GOGO

II-VI Inc. Nasdaq: IIVI

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