Square’s $1 billion convertibles, GFL offering eyed; RingCentral, Exact Sciences lower

By Abigail W. Adams

Portland, Me., March 2 – As equity markets rebounded from last week’s coronavirus-induced sell-off, the convertibles primary market maintained an active pace.

In an overnight deal, Square Inc. plans to price $1 billion of five-year convertible notes after the market close on Monday.

The deal looked cheap based on underwriters’ assumptions, but some sources took issue with the pricing.

The new offering jumpstarted activity in Square’s 0.5% convertible notes due 2023, which were down on an outright basis alongside stock.

GFL Environmental Inc.’s mandatory equity units were also heard to be in demand during bookbuilding with the offering oversubscribed and books closing early, sources said.

Meanwhile, the deals that priced last week continued to struggle in the secondary space.

RingCentral Inc.’s 0% convertible notes due 2025 remained well below par and continued to contract dollar-neutral.

While firm dollar-neutral, Exact Sciences Corp.’s 0.375% convertible notes due 2028 sank further below par.

Square eyed

In the latest overnight offering to be rolled out by the convertible primary market, Square plans to price $1 billion of five-year convertible notes after the market close on Monday.

Initial price talk was 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.

Other sources also felt the coupon range was tight.

However, the deal was heard to be in demand with books closing early.

The deal was heard to be pricing at the midpoint of initial talk with a coupon of 0.125% and an initial conversion premium of 50%.

Square is a serial issuer of convertible notes.

The new offering jumpstarted activity in the company’s outstanding 0.5% convertible notes due 2023.

The notes were down outright as stock sold off due to the overnight deal.

The 0.5% notes were down about 4 points outright and were changing hands at 125.25 in the late afternoon.

Square stock closed Monday at $80.67, a decrease of 3.19%.

GFL closes books

In a deal that has been on the forward calendar since early last week, GFL Environmental plans to price $700 million, or 14 million units, of $50-par three-year tangible equity units.

Initial price talk was 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 was marketed with assumptions of 300 bps over Libor and a vol. of 22% to 25%.

Using those assumptions, the deal looked about 2.875 points cheap at the midpoint of talk, a source said.

“For a company that’s interesting, it’s a good price,” another source said.

GFL Environmental’s offering of equity units was heard to be oversubscribed with the books closed on Monday.

However, sources were unclear if timing was accelerated, or if the deal was still slated to price after the market close on Tuesday due to the concurrent IPO, which was heard to still be in the works.

The equity units are pricing concurrently with the sanitation company’s IPO of 71,652,440 shares at an initial public offering price of $20.00 to $21.00.

There are different buyers for the equity units than the IPO, a source said.

GFL initially tried to price an IPO in November 2019 but scrapped the offering rather than price below the initial targeted range of $20.00 to $24.00, Bloomberg reported at the time.

GFL Environmental is a well-known name in junkbondland. The equity units are the company’s first time tapping the convertibles market.

Recent deals

Square is now the fifth issuer to bring forward an overnight deal, with new deal activity in other asset classes still slow on Monday despite the rebound in equities.

RingCentral’s 0% convertible notes due 2025, which priced prior to the market open on Friday, continued to struggle on Monday.

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

They continued to trade in the 97 range throughout the session and were contracted another 0.25 point dollar-neutral, sources said.

RingCentral stock traded to a low of $228.80 and a high of $240.56 before closing the day at $239.89, an increase of 1.79%.

Exact Sciences new 0.375% convertible notes due 2028 also continued to struggle.

While the notes were holding up well on a dollar-neutral basis, they continued to trade off on an outright basis.

The 0.375% notes were down another 3 points outright to a 94 handle in the mid-afternoon, a source said.

Exact Sciences stock traded to a low of $74.33 and a high of $82.76 before closing the day at $77.43, a decrease of 4.35%.

Mentioned in this article:

Exact Sciences Corp. Nasdaq: EXAS

RingCentral Inc. NYSE: RNG

Square Inc. NYSE: SQ

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