Morning Commentary: LendingTree convertibles skyrocket; Snap down outright, up on swap

By Abigail W. Adams

Portland, Me., July 22 – Wednesday opened with the first new convertible bond deal of the week hitting the secondary space.

LendingTree Inc. priced $500 million of five-year convertible notes after the market close on Tuesday.

The notes skyrocketed on their secondary market debut.

The deal is expected to be the lone new offering of the week as earnings reports pour in.

However, activity in the primary market is expected to heat up in the coming weeks as companies exit their earnings blackout period, a market source said.

While the new paper dominated activity in the secondary space, Snap Inc.’s convertible notes also saw some activity with the notes down outright but up on a dollar-neutral basis following its earnings report.

LendingTree skyrockets

LendingTree priced $500 million of five-year convertible notes after the market close on Tuesday at par at the midpoint of talk with a coupon of 0.5% and an initial conversion premium of 30%.

Price talk was for a coupon of 0.25% to 0.75% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The new paper skyrocketed on an outright and dollar-neutral basis on their secondary market debut.

The bonds traded up to 103.5 right out of the gate with stock flat, a market source said.

They reached as high as 104.75 and were marked at 103.75 bid, 104.25 offered with stock down 1% a little over one hour into Wednesday’s session.

LendingTree stock traded as low as $350.37 but bounced off its lows to trade around $353.24, a decrease of 0.43%, shortly before 11 a.m. ET.

Approximately $234 million of the proceeds from the new offering were used to repurchase $130.3 million of the company’s outstanding 0.625% convertible notes due 2022 in privately negotiated transactions.

The 0.625% convertible notes were repurchased at 179.5, which was 4 to 5 points above their previous trading level, a market source said.

Snap’s earnings

Snap’s convertible notes saw some activity with the notes down outright but up dollar-neutral following the camera and social media company’s second-quarter earnings report.

Snap’s 0.75% convertible notes due 2026 dropped about 6 points outright to 126.25 in early trading.

The company’s recently priced 0.25% convertible notes due 2025 were also down about 6 points to 128.375.

Both tranches expanded 0.5 to 0.75 point, a source said.

Snap stock traded down to $22.61, a decrease of 8.7%, shortly before 11 a.m. ET.

Snap reported an adjusted loss per share of 9 cents, which was in line with expectations. Revenue was $454 million, which beat analyst expectations for revenue of $439 million, CNBC reported.

However, stock traded off after the company reported widening losses and slowing user growth.

Snap priced a $1 billion issue of its 0.25% convertible notes in late April following a better-than-expected first-quarter earnings report.

Optimism around the company’s prospects enabled it to price a new offering with a lower coupon and with a shorter maturity than its outstanding convertible note.

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