Corium on tap; RingCentral convertible deal ‘looks good’; hedge players eye Frontier

By Abigail W. Adams

Portland, Me., Feb. 28 – The primary market was busy on Wednesday with two new deals in the works.

Corium International, Inc. plans to price $100 million of seven-year convertible notes prior to the market open on Thursday with price talk for a coupon of 4.5% to 5% and an initial conversion premium of 30% to 35%, according to a market source.

Cantor Fitzgerald & Co. is the manager for the Rule 144A deal, which carries a greenshoe of $20 million.

The market also awaits RingCentral Inc.’s offering of $350 million of five-year convertible notes, and the deal looks good, according to market sources.

RingCentral plans to price after the market close on Wednesday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 25% to 30%.

With a credit spread of 275 basis points over Libor and a 38% vol., the deal is attractive, a market source said.

While the market awaits new paper, Frontier Communications Corp.’s soon to mature 11.125% series A mandatory convertible preferred stock spiraled downward as its common stock tanked after the company announced it was suspending dividend payments on its common stock.

The preferred stock did improve slightly dollar neutral, and hedge players were seen stepping in as buyers, a market source said.

Herbalife Ltd.’s 2% convertible notes due 2019 were among the most actively traded during Wednesday’s session. The notes jumped about 5 points on an outright basis to trade up to 118 as common stock reached a new all-time high.

Herbalife announced plans to refinance a portion of the outstanding $1.15 billion of the 2% convertible notes on Wednesday. They also announced a stock split and expansion of its share repurchase program.

News also broke Wednesday that Bill Ackman’s Pershing Square Capital Management exited their short position in the Los Angeles-based manufacturer of nutritional supplements.

Convertible notes from Booking Holdings, formerly known as Priceline Group Inc., were also active during Wednesday’s session and jumped alongside stock after the Norwalk, Conn.-based operator of travel search engines released fourth-quarter and year-end reports after the market close Tuesday.

Software deals

RingCentral is the third mid-cap software company to price a new deal in recent weeks. Two software companies were responsible for the new deals last week.

The Belmont, Calif.-based provider of SaaS for business communications is a “great new fundamental name in the convert space,” a market source said.

The deal is being marketed with a credit spread of 275 bps over Libor and a 38% vol. “They’ll probably reprice it,” the source said.

Okta Inc.’s recently priced 0.25% convertible notes due 2023 were also pegged as an attractive deal.

Okta’s 0.25% convertible notes priced “out of range” on Feb. 22 with an initial conversion premium of 35%. Price talk had been for a coupon of 0.25% to 0.75% and an initial conversion premium of 27.5% to 32.5%.

Okta’s 0.25% notes expanded on debut. The notes were trading north of 104 in scattered trades early in Wednesday’s session with stock up a little more than 2%.

Hedged Frontier

Frontier Communications’ soon to mature 11.125% series A mandatory convertible preferred stock spiraled downward on Wednesday as its stock tanked after the Stamford, Conn.-based telecommunications company reported fourth-quarter and year-end results after the market close Tuesday.

The mandatory convertible preferred stock, which priced at par of $100 in June 2015, traded down to $12.19, a decrease of 12.11%, early in Wednesday’s session. The convertible preferred stock regained some footing later in the afternoon and closed the day at $12.67, a decrease of 8.65%.

As the convertible preferred stock traded down, it was up about 1 point on a dollar-neutral basis, a market source said.

The stock and the convertible preferreds sold off after the company announced it was suspending the dividend payment on common stock.

However, hedge players were seen stepping in to the name given how cheap it is, a market source said. “The borrow will cheapen up again,” a market source said.

“Those that were shorting in anticipation of the dividend cut will probably buy back their position now that the event occurred,” the source said.

Frontier reported a net loss attributable to common shares of $1.08 billion for the fourth quarter, or a diluted net loss per common share of $13.91.

Net loss attributable to common shares was $2.02 billion, or $25.99 per common share, for 2017. Frontier’s board of directors also announced a suspension of the dividend on common shares.

Frontier’s common stock closed Wednesday at $7.03, a decrease of 23.92%.

The 11.125% series A mandatory convertible preferred stock matures on June 29, 2018.

Herbalife lifted

Herbalife’s 2% convertible notes due 2019 saw an active day of trading on Wednesday and jumped more than 5 points on an outright basis as its stock reached new heights.

The 2% notes were seen trading at 118 versus an equity price of $94.73 mid-afternoon. The notes were among the most actively traded of the day.

Herbalife’s common stock closed Wednesday at $92.1, an increase of 6.3%, and a new high for the nutritional supplement company.

Herbalife announced on Wednesday plans to refinance a portion of the outstanding $1.15 billion of the 2% notes.

Herbalife expects to complete the refinancing of the 2% notes in the second quarter of 2018, according to a company news release.

Herbalife also announced on Wednesday plans to repurchase between $450 million and $650 million of company stock. The company also intends to effect a 2 for 1 stock split to increase shareholder value, according to the release.

News also broke on Wednesday that after a five-year campaign, Bill Ackman’s Pershing Square Capital Management had exited its short position in the company. Ackman had previously accused Herbalife of being a pyramid scheme.

Booking’s earnings

The convertible notes of Booking Holdings, the company formerly known as Priceline Group, saw high volume by dollar amount trading during Wednesday’s session after the company released its fourth-quarter and year-end reports.

The company’s 0.35% convertible notes due 2020 were up about 10 points outright and were seen trading at 158.9 versus an equity price of $2,059.44 mid-afternoon.

The company’s 1% convertible notes due March 15, 2018 were up about 7 points outright and were seen trading at 206, versus an equity price of $2,061.

The company’s 0.9% convertible notes due 2021 were up about 4 points outright and were seen trading at $124.75 versus an equity price of $2,058.21.

Booking Holdings reported a net loss of $555 million, or $11.41 per share, and a non-GAAP net income of $836 million, or $16.86 per diluted share, for the fourth-quarter.

Booking Holdings reported a net income of $2.3 billion, or $46.86 per diluted share, and a non-GAAP net income of $3.8 billion, or $77.03 per diluted share, for 2017.

Mentioned in this article:

Booking Holdings Nasdaq: BKNG

Corium International Inc. Nasdaq: CORI

Frontier Communications Corp. Nasdaq: FTR

Herbalife Ltd. NYSE: HLF

Okta Inc. Nasdaq: OKTA

RingCentral Inc. NYSE: RNG

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