BofA/Voya prices; Pure Storage converts expand on debut; secondary tone improves; Illumina active

By Abigail W. Adams

Portland, Me., April 5 – Trading volume in the secondary space, which has been low for most of the week, saw an uptick of activity on Thursday as new paper from Pure Storage hit the market after pricing in an overnight deal.

Pure Storage’s new 0.125% convertible notes due 2023 were the main volume movers of the day and were seen expanded.

While new paper entered the space on Thursday, the primary market remained active preparing another deal, which priced after the market close.

BofA Finance LLC priced $250 million in five-year cash-settled equity-linked notes tied to Voya Financial Inc. after the market close on Thursday with a coupon of 0.25% and an initial threshold premium of 37.5%.

Pricing came at the cheap end of talk for a coupon of 0% to 0.25% and an initial conversion premium of 37.5% to 42.5%, according to a market source.

BofA’s deal is the third of its kind to price in recent months with JPMorgan Chase Financial Co. LLC and Deutsche Bank AG, London Branch previously issuing cash-settled equity-linked notes tied to Voya.

There is speculation the notes are the result of a buy-side firm creating their own synthetic derivative or banks monetizing the Voya warrants that were acquired as a result of Voya’s spin-off from ING in 2015.

The trading frenzy surrounding Gannett Co., Inc.’s recently priced 4.75% convertible notes due 2024 tempered their second day on the market; however, the notes maintained their strength, a market source said.

They were seen trading at 101.875 versus an equity price of $9.25 late in the afternoon.

Pure Storage’s new convertibles were the focus of the secondary space on Thursday.

However, Illumina Inc.’s 0% convertible notes due 2019 also saw high volume trading during Thursday’s session with buyers swapping out the soon-to-mature 0% notes in favor of Illumina’s longer-dated 0.5% notes due 2021.

Pure Storage expands

Pure Storage’s new 0.125% notes due 2023 were in hot demand during the subscription process and after hitting the secondary market.

The notes expanded about 2 points dollar-neutral right out of the gate and were seen up about 1½ points dollar-neutral in the late afternoon, market sources said.

Pure Storage priced an upsized $500 million in five-year convertible notes prior to the market open Thursday with a coupon of 0.125% and an initial conversion premium of 32.5%.

Pricing came at the midpoint of talk for a coupon of 0% to 0.25% and at the cheap end of talk for an initial conversion premium of 32.5% to 37.5%, according to a market source.

The new paper was “well received” on its market debut and was seen largely wrapped around 102 in active trading, a market source said.

J.P. Morgan Securities LLC, Deutsche Bank, Morgan Stanley & Co. Inc. and Barclays Capital Inc. are joint bookrunners for the Rule 144A deal, which carries an upsized greenshoe of $75 million.

The initial size of the deal was $450 million with a greenshoe of $67.5 million.

The deal was marketed with a credit spread of 225 bps and a 42% vol., a market source said. Pricing of the deal was aggressive, a market source said.

“It’s surprising. They price these new issues rich and they do better,” the source said.

The deal came with a call spread and a share buyback.

The cap on the call spread is $39.66 per share, which represents a 100% premium of the last reported sales price of stock on April 4 from the company’s perspective.

The company will also repurchase $20 million, or 1,008,573 shares, of its common stock.

More Voya

Cash-settled equity-linked notes tied to Voya will again debut in the secondary market, but this time with BofA Finance as the issuer.

BofA priced $250 million of the cash-settled equity linked notes after the market close Thursday at the cheap end of talk with a coupon of 0.25% and an initial threshold premium of 37.5%.

Price talk had been for a coupon of 0% to 0.25% and an initial conversion premium of 37.5% to 42.5%

The notes carry similar features to the cash-settled equity-linked notes tied to Voya issued by Deutsche Bank and JPMorgan, such as a five-day averaging period post-pricing to determine the threshold price.

The five-day averaging period for BofA’s notes begins on April 6.

JPMorgan priced $350 million of five-year cash-settled equity-linked notes tied to Voya on Jan. 31 with a coupon of 0.25% and an initial conversion premium of 32.5%.

Pricing came at the middle of talk for a coupon of 0% to 0.5% and at the cheap end of talk for an initial conversion premium of 32.5% to 37.5%.

The threshold price on JPMorgan’s notes is $67.68198, Prospect News reported.

Deutsche Bank priced $300 million of cash-settled equity-linked notes tied to Voya on March 8 with a coupon of 1% and an initial conversion premium of 30%.

The deal came at the cheap end of talk for a coupon of 0.5% to 1% and the middle of talk for a threshold of 27.5% to 32.5%.

The threshold price on Deutsche’s notes is $69.83790.

While JPMorgan’s notes initially struggled after hitting the market, they traded as high as 104 in late February and early March but have headed downward since Deutsche priced its deal.

JPMorgan’s 0.25% notes were seen trading at 99.5 on Thursday. Deutsche’s 1% notes were seen wrapped around 101.

Deutsche Bank’s 1% notes have takeover protection while JPMorgan’s 0.25% notes do not, which was partially responsible for the drop in value of the 0.25% notes, a market source said. Voya has long been the subject of takeover rumors, sources said.

BofA’s cash-settled notes carry a make-whole adjustment premium upon a change of control.

There has been speculation the plethora of cash-settled equity-linked notes tied to Voya is the result of a buy-side fund issuing their own bond to gain exposure to Voya equity through a synthetic derivative.

There is a limit on how much a buyside fund can use a bank for a derivative, which may explain the number of different financial institutions involved.

However, many of the large banks also own warrants for Voya as a result of the company’s spin off from ING and the cash-settled equity-linked notes may be an effort to monetize them, a market source said.

Trading volume

There was a marked uptick in trading volume in the secondary space on Thursday with Pure Storage leading the charge.

The new notes accounted for more than $128 million of the about $444 million on the tape by late afternoon.

While trading volume outside of Pure Storage remained relatively light, the secondary market looked firm on Thursday with the rebound in equities.

However, there is caution in the market with some backup in rates but the overall tone is good, a market source said.

Illumina active

While new paper from Pure Storage accounted for nearly one-third of the total trading volume during Thursday’s session, Illumina’s 0% convertible notes due 2019 were also active on the tape with about $17.5 million in play by late afternoon.

The notes were up slightly on an outright basis and were seen trading at 110.5 versus an equity of $237.55.

Illumina’s 0.5% notes due 2021 were also active, although to a lesser extent. The 0.5% notes were seen trading at about 124.5 versus an equity of 236.32.

Illumina stock closed Thursday at $236.37, a decrease of 0.59%.

Buyers are trading out the soon-to-mature 0% notes for the longer-dated 0.5% notes, a market source said.

Mentioned in this article:

Gannett Co. Inc. NYSE: GCI

Illumina Inc. Nasdaq: ILMN

Pure Storage NYSE: PSTG

Voya Financial Inc. NYSE: VOYA

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