Goldman Sachs BDC prices add-on; convertibles market eyes Arbor, Zillow, Intrexon

By Abigail W. Adams

Portland, Me., June 28 – The pipeline of new deals in the convertibles space remains active with one deal pricing prior to the market open on Thursday and three more set to price after the market close.

Goldman Sachs BDC, Inc. priced an upsized $40 million add-on to its 4.5% convertible notes due 2022 at a public offering price of 99.26 prior to the market open on Thursday.

The investment-grade paper was in demand during book building, a market source said.

Arbor Realty Trust Inc. plans to price $100 million of three-year convertible notes after the market close on Thursday with price talk for a coupon of 4.75% to 5.25% and an initial conversion premium of 10% to 15%. The deal looked about 0.5 point rich, a market source said.

Zillow Group Inc. plans to sell $325 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 1% to 1.5% and an initial conversion premium of 37.5% to 42.5%.

The deal modeled out to fair value and was reported to be struggling in book building, sources said.

Intrexon Corp. plans to price $200 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 3% to 3.5% and an initial conversion premium of 27.5% to 32.5%.

While the deal modeled cheap, the borrow on the stock is difficult, a market source said.

As attention shifted to the new deals in the works, Momo Inc.’s newly priced 1.25% convertible notes due 2025 were making a comeback with the notes once again expanding dollar neutral after a tumultuous market debut.

MongoDB, Inc.’s recently priced 0.75% convertible notes due 2024 continued to trade down with the notes now on a 96 handle. While well below par, the notes were largely flat dollar neutral, a market source said.

With the onslaught of new deals over the past week, June is set to end with more than $10 billion in new deal volume.

The pricing of recent deals is weaker than it was a month ago with deals starting to fall to the midpoint of talk, a market source said.

However, the terms “are still exceptional,” a market source said.

Any corporation that has the ability to issue a convertible at the current rates with a call spread to raise the premium to 50% to 100% “are out of their minds not to be borrowing,” a market source said.

The add-on

Goldman Sachs BDC priced an upsized $40 million add-on to its 4.5% convertible notes due 2022 at a public offering price of 99.26 prior to the market open on Thursday.

The add-on lifts the total outstanding amount of the notes to $155 million. The initial size of the add-on was $32.5 million.

The 4.5% notes are an illiquid issue and do not trade often, resulting in a wide range of opinions about the fair market value of the notes.

However, the add-on “came at a tight discount,” a market source said.

There were “numerous inquiries” into the deal, which included non-holders, a market source said.

Goldman Sachs BDC was assigned an investment-grade rating by Fitch Ratings on June 18 and was active in lobbying for the Small Business Credit Availability Act, which was signed into law in March.

“The investment-grade rating from Fitch is noteworthy as we seek to capitalize on the broader range of financing strategies available to the company following the passage of the Small Business Credit Availability Act,” CFO Jonathan Lamm said in a press release following Fitch’s BBB- credit rating.

“We believe all of our stakeholders benefit from prudent balance sheet management, which facilitates ongoing access to both debt and equity capital markets,” Lamm said.

The 4.5% convertible notes were not seen on the tape on Thursday with holders holding onto the notes, a source said.

The convertible notes “are definitely an investment-grade value,” a source said.

Arbor looks rich

Arbor Realty Trust plans to sell $100 million of three-year convertible notes after the market close on Thursday with price talk for a coupon of 4.75% to 5.25% and an initial conversion premium of 10% to 15%.

The deal is being marketed with a credit spread of 325 basis points over Libor and a 16% vol., according to a market source. The deal looked about 0.5 point rich at the midpoint of talk, a market source said.

The company intends to use the proceeds to enter into privately negotiated transactions with holders of the 6.5% convertible senior notes due 2019 to exchange the 6.5% notes for cash and stock.

The 6.5% notes were quoted up 4 points on Thursday at 126.61, according to a market source.

Arbor stock closed Thursday at $10.45, an increase of 3.77%.

Zillow fair value

Zillow plans to price $325 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 1% to 1.5% and an initial conversion premium of 37.5% to 42.5%.

The deal is being marketed with a credit spread of 225 bps over Libor and a 16% vol., according to a market source.

The deal modeled out to fair value at the midpoint of talk, a source said.

The deal was heard to be struggling during book building with investors passing on the deal.

The notes are being offered concurrently with a $325 million class C capital stock offering.

While Zillow prepared a new convertible notes offering, the company’s 2% notes due 2021 were active with more than $9 million of the bonds on the tape by the late afternoon.

The notes were seen trading at 126.32 versus an equity price of $58.90.

They were down about 2 points outright but were relatively unchanged dollar neutral, a market source said.

Intrexon looks cheap

Intrexon plans to sell $200 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 3% to 3.5% and an initial conversion premium of 27.5% to 32.5%.

The notes are being marketed with a credit spread of 700 bps over Libor and a 40% vol., according to a market source.

The deal modeled about 3.8 points cheap at the midpoint of talk, a market source said. However, the borrow on stock is difficult.

Concurrently with the convertible notes offering, Intrexon is offering $100 million of common stock, which will be loaned to JPMorgan in a share lending agreement.

Intrexon stock has a tight borrow and the share lending agreement will free stock to enable hedging, a market source said.

With the borrow facility, the notes will most likely trade predominately with the underwriter, a source said.

Momo rebounds

While attention shifted to the new paper in the works, Momo’s 1.25% convertible notes due 2025 continued to dominate trading activity in the secondary space with more than $43 million of the bonds on the tape by late afternoon. The notes were rebounding alongside stock.

They were seen trading at 98.9 versus an equity price of $44.64 late afternoon Thursday. The notes expanded about 1 point on a dollar-neutral basis after closing Wednesday contracted by about 0.5 point.

Momo stock closed Thursday at $44.42, an increase of 3.64%.

“They’re coming back slowly but surely,” a source said.

The 1.25% notes had a tumultuous secondary market debut. They traded up to 101 early Wednesday but hit a low of 95.75 later in the afternoon.

While at one point expanded 0.75 point on Wednesday the notes ended the day contracted.

The volatility in Momo’s convertible bond was largely due to a Spruce Point Capital Management report that alleged the company was responsible for several financial improprieties.

The report sparked a sell-off in Momo’s stock.

Momo issued a press release refuting the allegations in the Spruce Point report on Thursday.

MongoDB down

MongoDB’s 0.75% convertible notes due 2024 have also taken a hit since hitting the market on Tuesday.

The 0.75% notes were trading with a 96 handle on Wednesday.

They were seen trading at 96.26 versus an equity price of $49.26 with about $8 million bonds on the tape by late afternoon.

While the notes were down on an outright basis, they were largely flat dollar neutral, a market source said.

Mentioned in this article:

Arbor Realty Trust Inc. NYSE: ABR

Goldman Sachs BDC, Inc. NYSE: GSBD

Intrexon Corp. NYSE: XON

Momo Inc. Nasdaq: MOMO

MongoDB, Inc. Nasdaq: MDB

Zillow Group Inc. Nasdaq: Z

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