Plug Power, Blackstone, Accelerate Diagnostics convertibles on tap; secondary quiet

By Abigail W. Adams

Portland, Me., March 22 – With the Federal Reserve interest rate hike announced, the convertibles primary market has been busy preparing new paper. Three new deals totaling $470 million are expected to price after the market close on Thursday.

Plug Power Inc. plans to price $100 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 5% to 5.5% and an initial conversion premium of 20% to 25%, according to a market source.

Accelerate Diagnostics Inc. plans to price $150 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 2% to 2.5% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

Plug Power and Accelerate Diagnostics both will enter into prepaid forward purchase transactions in connection with the convertible notes offering.

“They both have borrow facilities. We haven’t seen those in a while,” a market source said. “That’s interesting.”

Blackstone Mortgage Trust Inc. also plans to price $220 million of five-year convertible notes after the market close on Thursday.

The offering carries a fixed coupon of 4.75% and an initial conversion premium of 15% with price talk for an issue price of 99 to 99.5.

The deal is being marketed with a credit spread of 231 basis points and an 11.7% vol., which looks to be about fair value, a market source said.

As focus turns toward the new paper in the works, the secondary market was quiet as equities took “a pretty good hammering” during Thursday’s session, a market source said.

The Dow Jones industrial average closed Thursday down 724 points, the fifth worst daily point decline in history. The S&P 500 closed Thursday down 2.52% with fear of a trade war with China rattling investors.

“When the market goes down like this a lot of the outrights get frozen,” a market source said.

Despite the drop in equities, recent deals maintained their strength. Live Nation Entertainment Inc.’s recently priced 2.5% convertible notes due 2023 and Zendesk Inc.’s recently priced 0.25% convertible notes due 2023 were among the top-volume movers of Thursday’s session.

Herbalife Ltd.’s 2.625% convertible notes due 2024 remained active on the tape their second day in the market and were seen trading just south of 101.

After experiencing heavy trading volume on their market debut, trading activity surrounding Apptio Inc.’s 0.875% convertible notes due 2023 tempered their second day in the market.

However, the 0.875% notes continued to trade up and were seen at 104 with stock down.

Borrow facility

The deals on tap from Plug Power and Accelerate Diagnostics both have borrow facilities.

The forward purchase transactions are to accommodate convertible arbitrageurs who otherwise would not be able to participate in the deal. “There’s not enough borrow to short the stock,” the source said.

The deal from Accelerate Diagnostics is expected to do well. “It’s a real business with a real market cap,” a market source said. The Tucson, Ariz.-based in vitro diagnostics company has a market capitalization of $1.36 billion.

However, Plug Power “will be challenging,” a market source said. “It’s a difficult business. It will be interesting to see how investors respond.”

The Latham, N.Y.-based designer and manufacturer of hydrogen fuel cell systems has a market cap of $436.62 million. “The borrow’s not good,” a market source said.

Blackstone’s deal

Blackstone Mortgage Trust’s offering of $220 million of five-year convertible notes carries a fixed coupon of 4.75% and an initial conversion premium of 15%. Price talk is for an issue price of 99 to 99.5.

With a fixed coupon and initial conversion premium, it is likely the company gave underwriters permission to sell the bonds at a discount without eating into their fees, a market source said.

“Normally, you don’t lock in the coupon and the premium,” a market source said. The discount may be to make up for the low volatility of the stock, the source said.

The underwriters are assuming a credit spread of 231 bps and an 11.7% vol. “The credit spread is kind of tight,” a market source said. However, the deal looks to be about fair market value, the source said.

The deal is about 25% hedged.

Blackstone Mortgage is a serial issuer and a well-known name in the convertibles space. The new notes are expected to sit around par after pricing.

Day two

While trading activity surrounding Apptio’s 0.875% convertible notes due 2023 tempered their second day on the market, Herbalife’s 2.625% notes continued to see steady trading during Thursday’s session.

Herbalife’s 2.625% notes were seen trading at 100.83 with the stock down slightly. “They’re hanging in there,” a market source said. Herbalife stock closed Thursday at $97.53, a decrease of 0.36%.

While trading activity was light on Thursday, Apptio’s 0.875% convertible notes continued to expand. Only about $6 million bonds were seen on the tape during Thursday’s session. However, the notes were seen trading at 104 with stock down.

Apptio stock closed Thursday at $29.65, a decrease of 1.66%.

Both Apptio and Herbalife made their market debut on Wednesday.

Recent deals

While quiet on the tape in recent days, Zendesk’s 0.25% convertible notes due 2023 and Live Nation’s 2.5% convertible notes due 2023 were among the top-volume movers of Thursday’s session.

Zendesk’s 0.25% convertible notes were wrapped around 102 in active trading on Thursday after dropping below par their second day in the market. Zendesk stock closed Thursday at $48.12, a decrease of 1.57%.

Live Nation’s 2.5% convertible notes were also active on Thursday and were trading just above and just below 101. Live Nation stock closed Thursday at $42.5, a decrease of 1.37%.

The convertible notes from Live Nation and Zendesk made their market debut on March 16.

Mentioned in this article:

Accelerate Diagnostics Inc. Nasdaq: AXDX

Apptio Inc. Nasdaq: APTI

Blackstone Mortgage Trust Inc. NYSE: BXMT

Herbalife Ltd. NYSE: HLF

Live Nation Entertainment Inc. NYSE: LYV

Zendesk Inc. NYSE: ZEN

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