IAC revises terms on $1 billion convertible offering; Veoneer looks cheap; Tesla down

By Abigail W. Adams

Portland, Me., May 21 – As equities continued to seesaw on trade-related news, all eyes were on the convertibles forward calendar and the new deals coming down the pike.

IAC/InterActive Corp. revised terms on its $1 billion two-tranche exchangeable notes offering, which is slated to price after the market close on Tuesday.

The deal looked cheap based on initial talk and was trading up in the gray market, sources said.

IAC’s outstanding 0.875% convertible notes due 2022 contracted in active trading on Tuesday with the new offering in the works.

The megadeal from IAC will be followed by a $150 million offering from Veoneer, Inc. on Wednesday. The deal also modeled cheap using underwriters’ assumptions, sources said.

However, the credit was dicey.

Meanwhile, while equity markets regained their footing on Tuesday due to an extension of limited relief to Huawei customers, Tesla Inc.’s convertible notes remained under pressure and continued to contract in high-volume activity in the secondary space.

IAC looks cheap

IAC revised terms on its $1 billion two-tranche offering of exchangeable note, which are slated to price after the market close on Tuesday.

Talk on the $500 million tranche of seven-year notes was revised to a coupon of 0.875% to 1% with an initial exchange premium of 32.5%, according to a market source.

Initial talk was for a coupon of 1% to 1.5% with an initial exchange premium of 27.5% to 32.5%.

The tranche was in the market with a credit spread of 250 basis points over Libor and a 32% vol., a market source said.

Sources pegged the deal 2.625 points to 2.75 points cheap at the midpoint of initial talk.

Talk on the $500 million tranche of exchangeable notes due 2030 was revised to a coupon of 2% to 2.25% with an initial exchange premium of 27.5%, according to a market source.

The tranche was being marketed with a credit spread of 325 bps over Libor and a 30% vol.

Sources pegged the deal between 3.125 points and 3.375 points cheap at the midpoint of the initial talk.

While some sources felt the credit assumptions were aggressive, the deal still looked cheap with a wider credit spread.

Using a credit spread of 275 bps over Libor and a 32% vol., the seven-year tranche still modeled about 2 points cheap, a market source said.

Using even more conservative credit spreads, both tranches would still model 1 point to 1.5 points cheap, a market source said.

“It should do well,” the source said.

Both tranches were trading up about 0.5 points in the gray market, another source said.

IAC comes in

While market players were eyeing IAC’s new offering, the media and internet holding company’s 0.875% convertible notes due 2022 were contracting in active trading.

The notes dropped about 4 points outright to 158.75 in the late afternoon.

They were contracted about 1 point dollar-neutral, a market source said.

The contraction was a large one, especially with only 7 points of premium left on the notes, the source said.

IAC stock closed Tuesday at $228.59, a decrease of 1.59%.

Veoneer on Wednesday

The megadeal from IAC will be followed on Wednesday by Veoneer’s convertible notes offering.

Veoneer plans to price $150 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 3.75% to 4.25% and an initial conversion premium of 25% to 30%.

The deal was heard to be in the market with a credit spread of 800 bps over Libor and a 40% vol., according to a market source.

The deal modeled about 6 points cheap at the midpoint of talk.

However, the Stockholm, Sweden-based automotive safety electronics developer and manufacturer is a “dicey credit,” a market source said.

The borrow was also heard to be difficult.

The deal is pricing concurrently with a $350 million common stock offering, which carries a greenshoe of $52.5 million.

Tesla down again

Tesla’s convertible notes remained in focus in the secondary space and continued to trend lower.

The 2% notes were down another 2 points outright to change hands around 88.25 early in the session but popped back up to 90.625 in the late afternoon.

They were contracted another 0.25 point on Tuesday.

The bonds saw more than $33 million in reported volume in the late afternoon.

Tesla’s 1.25% convertible notes due 2021 and 2.375% convertible notes due 2022 were down 0.75 point dollar-neutral, a market source said.

The 1.25% convertible notes were changing hands at 92 early in the session and popped back up to 93.5 as stock rallied into the afternoon.

With more than $24 million in reported volume, the 1.25% notes were also among the most actively traded names in the secondary space during Tuesday’s session.

Tesla’s 2.375% convertible notes due 2022 traded as low as 92.5 early in the session before popping back up to 93.5 in the mid-afternoon.

More than $14 million of the bonds were on the tape by the late afternoon.

European accounts were selling the convertible notes, a market source said.

Tesla stock traded as low as $196.04 early Tuesday but pared its losses and closed the day at $205.03, a decrease of 0.16%.

Tesla stock continued to trend lower on Tuesday after Morgan Stanley analysts lowered their worst-case scenario for the stock to $10 from $97 due to lack of demand.

While Morgan Stanley analysts lowered the worst-case scenario, the price target remained constant at $230.

Mentioned in this article:

IAC/InterActive Corp. Nasdaq: IAC

Tesla Inc. Nasdaq: TSLA

Veoneer, Inc. NYSE: VNE

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