Morning Commentary: Impinj convertibles on tap, look cheap; Chegg in focus, stock tanks

By Abigail W. Adams

Portland, Me., Nov. 2 – The first new convertible bond deal of the month is set to price after the market close on Tuesday – Impinj Inc.’s $225 million offering of six-year convertible notes.

The refinancing deal looked cheap based on underwriters’ assumptions, which was most likely done in an effort to entice holders to swap out of their deep-in-the-money 2% convertible notes due 2026.

Meanwhile, earnings-related volatility continued to spark activity in the secondary space with Chegg Inc.’s convertible notes dominating the tape.

While Chegg’s convertible notes tanked on an outright basis alongside stock, they were holding up well on hedge, a source said.

Impinj eyed

Impinj plans to price $225 million of six-year convertible notes after the market close on Tuesday with price talk for a coupon of 1.25% to 1.75% and an initial conversion premium of 37.5% to 42.5%, according to a market source.

The deal was heard to be in the market with assumptions of 475 basis points over Libor and a 42% vol., a source said.

Using those assumptions, the deal looked 1.4 points cheap at the midpoint of talk.

Proceeds from the refinancing deal will be used to repurchase for cash a portion of the company’s 2% convertible notes due 2026 in privately negotiated transactions.

Impinj priced an $86.25 million issue of the 2% notes at par in December 2019. The small, illiquid issue is deep-in-the-money and rarely trades, a source said.

Prior to Tuesday’s session, the 2% notes last traded on Oct. 13 at 169 when stock was $52.33.

Stock has skyrocketed over the last two weeks and was changing hands at $76.10, an increase of 4.65%, shortly before 11 a.m. ET.

“No wonder they want to take out the old ones,” a source said. The cheapness in the new deals was most likely an effort to entice holders to swap the 2% notes for the new issue, which carried a higher premium.

The 2% notes saw some scattered trades early Tuesday. They were changing hands at 226.45. It was unclear whether the trading level was the takeout price.

Chegg’s earnings

Chegg’s convertible notes were in focus on Tuesday with stock nearly cut in half after the education technology company’s earnings report.

The 0.125% convertible notes due 2025 were down about 12 points outright in high-volume activity.

They were changing hands at 102.185 versus a stock price of $35.38 early in the session.

The notes appeared to have expanded on the move down, a source said.

There was more than $55 million in reported volume.

Chegg’s 0% convertible notes due 2026 shaved off more than 13 points outright.

They were changing hands at 81.875 versus a stock price of $35.44.

With a yield of about 4.2%, the 0% notes may have found their bond floor, a source said.

Chegg’s stock was changing hands at $34.04, a decrease of 45.78%, shortly before 11 a.m. ET.

Chegg reported earnings per share of 5 cents versus analyst expectations for earnings per share of 19 cents.

Revenue was $171.9 million versus analyst expectations of $173.9 million.

The company reported a steep decline in subscribers and warned of a slow-down in the education industry.

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