Avantor convertible preferreds on tap; Exact Sciences, Tesla active in secondary trading

By Abigail W. Adams

Portland, Me., May 15 – The convertibles secondary space was again subdued on Wednesday as volatility continued to roil equities.

The primary market has been largely quiet as earnings roll out and equities see-saw between gains and losses.

Equities reversed losses from early in Wednesday’s session and closed with gains as president Donald Trump promised to delay imposing tariffs on auto imports, signaling a de-escalation in the intensifying trade war rhetoric.

While the primary market has taken a backseat amid the volatility, there will be new paper before the week is through.

After an extended roadshow, Avantor Inc. plans to price $500 million, or 10 million shares, of $50-par three-year series A mandatory convertible preferreds after the market close on Thursday.

While the new mandatory paper will be welcome in the convertible space, the deal will be difficult to hedge due to its pricing alongside the company’s IPO, sources said.

Meanwhile, trading volume in the secondary space continued to be relatively light with China-based corporations and the tech sector continuing to account for the majority of trading volume.

However, Exact Sciences Corp.’s 0.375% convertible notes due 2027 were also volume movers on Wednesday with the notes gaining outright as stock rebounded.

While up on an outright basis, they were flat to slightly contracted dollar-neutral.

Tesla Inc.’s newly priced 2% convertible notes due 2024 also remained active with stock again on the rise after taking a hit over the past two sessions.

However, the notes were also largely unchanged dollar-neutral.

Avantor coming soon

Avantor plans to price $500 million, or 10 million shares, of $50-par three-year series A mandatory convertible preferreds after the market close on Thursday with 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 is pricing concurrently with its initial public offering, where it intends to price 153,999,900 shares at a price between $18.00 and $21.00 per share.

With the extended bookbuilding process, the deal had fallen off the radar of several sources queried.

The new paper was expected to trade sloppy out of the gate with no borrow available to hedge, a market source said.

The mandatories pricing alongside the company’s IPO makes it a little different from a traditional mandatory preferred deal.

The mandatory convertible preferreds are more like an equity surrogate, another source said.

The IPO may have included the concurrent offering due to a cap on the amount of equity that could be raised, the source said.

However, Avantor is a well-known name with a solid reputation, other sources said. The new paper will be welcome due to the amount of mandatories that have left the space.

Exact Sciences active

Exact Sciences’ 0.375% convertible notes due 2027 were among the top traded names on Wednesday with the notes gaining outright as stock rebounded after dropping more than 12% since last Thursday.

The 0.375% notes rose about 3 points outright to 108.75, according to a market source.

While up on an outright basis, the notes were largely trading in line dollar-neutral. They may have seen a slight 0.125 point contraction on their way up, a market source said.

More than $8 million of the bonds were on the tape by the late afternoon.

Exact Sciences stock closed Wednesday at $95.37, an increase of 3.66%.

Exact Sciences stock closed last Thursday at $102.24.

The diagnostic company’s stock took a beating on Friday and Monday after Guardant Health announced plans to develop a liquid biopsy test for colon cancer, which would compete with Exact Sciences’ flagship Cologuard product.

Tesla flat

Tesla’s newly priced convertible notes were once again major volume movers on an otherwise quiet day in the secondary space.

The 2% notes were trading in a range between 97.25 and 97.625 as stock saw large price swings.

However, the notes were largely unchanged dollar-neutral as “stock whipsawed,” a market source said.

While the notes have come in since their initial expansion on their secondary market debut, they were still maintaining about a 0.5 point expansion since pricing, a source said.

Tesla stock traded to a low of $225.25 and a high of $232.44 before closing the day at $231.95, a decrease of 0.15%.

After getting hammered on Monday, Tesla stock closed largely flat on Wednesday after a rebound during Tuesday’s session.

Tesla is one of several companies that would be hard hit from an impasse in trade negotiations, sources said.

Mentioned in this article:

Exact Sciences Corp. Nasdaq: EXAS

Tesla Inc. Nasdaq: TSLA

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