Morning Commentary: Rocket Lab convertible notes offering eyed; Barclays on deck

By Abigail W. Adams

Portland, Me., Feb. 1 – The convertibles primary market continued to roll out deals at a steady pace with two offerings slated to price after the market close on Thursday.

Rocket Lab USA Inc. plans to price $275 million of five-year convertible notes after the market close on Thursday.

The offering looked cheap based on underwriters’ assumptions and is expected to do well given the strong demand for new paper.

Barclays Bank plc also plans to price $250 million of five-year cash-settled equity-linked notes tied to Microsoft Corp. after the market close.

The synthetic offering was pre-priced and mostly spoken for by a limited group of investors.

The new deal activity comes as equity indexes rebounded from the heavy post-Fed selling of the previous session.

Treasuries rallied on the Fed’s continued rate pause and projected rate cuts with the strength carrying over to Thursday’s session.

However, equities tanked with the higher-for-longer narrative squashing expectations for a March rate cut.

Equities pared their losses early Thursday with the Dow Jones industrial average up 59 points, or 0.14%, the S&P 500 index was 0.43%, the Nasdaq Composite index was up 0.65% and the Russell 2000 index was up 0.25% shortly before 11 a.m. ET.

There was $98 million in reported convertible bond trading volume about one hour into the session although activity was concentrated in the top three traders, two of which were investment grade.

Etsy Inc.’s 0.125% convertible notes due 2027 were among the top three traders in the space with the notes making gains after an Elliot Investment Management partner secured a seat on the board.

Rocket Lab eyed

Rocket Lab plans to price $275 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 3.75% to 4.25% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of 750 basis points over SOFR and a 45% vol.

The offering looked cheap based on underwriters’ assumptions and was expected to do well given the strong demand for new paper, sources said.

However, Rocket Lab has a credit profile that many investors have shunned recently with the company going public in 2021 through a SPAC.

Losses from SPAC names are still an open wound for many investors.

Synthetic on deck

Barclays plans to price $250 million of five-year cash-settled equity-linked notes tied to Microsoft after the market close on Thursday with price talk for an issue price of par, a coupon of 1% and an initial conversion premium of 30%.

The offering comes as a refinancing with proceeds to be used to repurchase up to $225 million of Barclays’ 0% cash-settled notes tied to Microsoft due 2025.

The deal will most likely play to a limited group of investors, a source said.

Etsy gains

Etsy’s 0.125% convertible notes due 2027 were in focus on Thursday as stock soared after activist investor Elliot Management secured a seat on the board.

The 0.125% notes gained about 1.5 points outright.

The notes were trading at 84.375 versus a stock price of $73.58 early in the session, according to a market source.

There was $8 million in reported volume.

Etsy’s stock was trading at $72.81, an increase of 9.44%, shortly before 11 a.m. ET.

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