Morning Commentary: Square’s $1 billion convertible offering eyed; RingCentral active

By Abigail W. Adams

Portland, Me., March 2 – As equity markets struggle to rebound from last week’s coronavirus-induced sell-off, the convertible primary market continued to roll out the overnight deals on Monday.

Square Inc. plans to price $1 billion in five-year convertible notes after the market close on Monday with price talk for a coupon of 0% to 0.25% and an initial conversion premium of 47.5% to 52.5%, according to a market source.

The deal was heard to be in the market with assumptions of 175 basis points over Libor and a 39% vol.

Using those assumptions, the deal modeled a little more than 2.25 points cheap at the midpoint of talk, a source said.

However, the vol. seemed aggressive, another source said.

Using a tighter credit spread and more conservative vol. assumptions, the deal looked about 1.875 points cheap at the midpoint of talk, the source said.

While the deal modeled cheap, sources took issue with the premium range. “That’s way too much premo,” a source said.

While the broader markets experienced a brutal sell-off last week, Square stock gained 8% on the week following a fourth-quarter earnings beat.

Square reported earnings per share of 23 cents versus analyst expectations for earnings of 21 cents last Wednesday.

Revenue was $1.31 billion versus analyst expectations for revenue of $1.186 billion.

Guidance for 2020 also beat expectations with revenue expected to be $5.9 billion to $5.96 billion versus analyst expectations for revenue of $5.61 billion.

Square is now the fifth issuer to bring forward an overnight deal as coronavirus-induced volatility continues to sideline deal-making in other asset classes.

RingCentral Inc.’s 0% convertible notes due 2025, which priced prior to the market open on Friday, were active early in Monday’s session although the notes continued to languish below par.

The 0% notes were changing hands at 97.875 about one hour into the session with stock down a little more than 1%, according to a market source.

There was about $7 million in reported volume early in the session.

RingCentral stock was trading at $233.30, a decrease of 1.04%, shortly before 11 a.m. ET.

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