Chegg upsized, expands on market debut; Tesla rebounds; Jazz Pharmaceuticals active

By Abigail W. Adams

Portland, Me., March 29 – The market came to an early close on Thursday, but the tape was active with Chegg Inc.’s upsized offering of 0.25% convertible notes due 2023 entering the space.

The new notes dominated trading activity and expanded on their market debut.

While Chegg was the main focus of the convertibles space on Thursday, Tesla Inc.’s three tranches of convertible notes continued to see active trading.

The notes rebounded slightly on a dollar-neutral basis as Tesla stock made gains after a steep decline on Tuesday and Wednesday.

However, the convertible notes were still contracted from the week, a market source said.

Jazz Pharmaceuticals plc’s convertible notes also saw some trading action during Thursday’s truncated session.

Jazz’s 1.5% exchangeable notes due 2024 and 1.875% convertible notes due 2021 were relatively unchanged on an outright basis as the company’s stock was up 2.2%.

Chegg’s deal

Chegg’s offering of convertible notes was in high demand during the subscription process and in the secondary market on its Thursday debut.

Chegg priced $300 million of five-year convertible notes after the market close on Wednesday with a coupon of 0.25% and an initial conversion premium of 32.5%.

Pricing came within talk for a coupon 0% to 0.5% and at the rich end of talk for an initial conversion premium of 27.5% to 32.5%.

The deal was “well oversubscribed and upsized by 20%,” a market source said. “It was a highly successful offering,” the source said.

Morgan Stanley & Co. LLC and BofA Merrill Lynch are joint bookrunners for the Rule 144A deal, which carries an upsized greenshoe of $45 million.

The initial size of the deal was $250 million with a greenshoe of $37.5 million.

With a credit spread of 275 bps and a 40% vol., the deal looked to be about 2.5-points to 3-points cheap at the midpoint of talk, sources said. It was predicted to fly out of the gate.

And it did.

Chegg’s 0.25% notes were the major volume movers of Thursday’s session accounting for $118.8 million of the total $429.28 million in play.

The notes expanded as soon as they hit the market and were seen up 1.75 points dollar neutral shortly before market close, sources said.

The deal was in line with several of the recent tech deals attracting both hedge and long only accounts. It came with a call spread and a share buyback.

Chegg used $20 million of the proceeds from the offering to repurchase 983,284 shares of its common stock.

Approximately $34.1 million of the proceeds will be used to cover capped call transactions.

Similar to many of the recent convertible notes offerings, Chegg carried a low coupon. The low coupons may start to become problematic, market source said.

Tesla rebounds

While Chegg dominated the convertibles space on Thursday, Tesla’s three tranches of convertible notes continued to see active trading after dominating trading activity on Wednesday.

While down on an outright basis early in the session, the notes rebounded alongside stock and saw a modest expansion on a dollar-neutral basis.

Tesla’s 0.25% notes due 2019 were seen trading in the 98.5 range early in the session but were wrapped around 99 in the afternoon. The notes were seen trading at 99.3 versus an equity price of $256.89 late in the afternoon.

Tesla’s 1.25% convertible notes due 2021 were seen trading around 97 early in the session but crept back to 98 by the market close. They were seen trading at 98.7 versus an equity price of $262.17 in the afternoon.

Tesla’s 2.375% convertible notes due 2022 were seen trading around 101 early in the session but climbed back to 104 by the market close Thursday. They were seen trading at 104.1 versus an equity price of $263.40.

Tesla stock was volatile during Thursday’s session dipping to a low of $248.21 and rising to a high of $270.96 before closing the day at $266.13, an increase of 3.24%.

Tesla’s convertible notes were seen up about ¼-point dollar neutral late in the afternoon although they were still contracted from the week, a market source said.

The electric car manufacturer has experienced an onslaught of negative publicity over the past week with an ongoing investigation into a fatal accident involving a Tesla Model X, a credit downgrade, speculation that the company is on the verge of bankruptcy, rumors the Model S sedans will again miss their production goals, and an investors’ lawsuit over Tesla’s acquisition of Solar City Corp. moving to the next stage.

Jazz active

While the trading activity paled in comparison, Jazz Pharmaceuticals’ convertible notes also saw some action during Thursday’s session.

Jazz’s 1.5% exchangeable notes were up slightly but were still wrapped around 97 with about $8 million bonds traded.

The 1.5% notes were seen trading at 97.4 versus an equity price of $150.71.

Jazz’s 1.875% convertible notes due 2021 also saw a modest increase on Thursday although they were still wrapped around 104 with about $6 million bonds in play.

The 1.875% notes were seen trading around 104.8 versus an equity of $152.42.

Jazz stock wavered between $148 and $152 before closing Thursday at $150.99.

Mentioned in this article:

Chegg Inc. NYSE: CHGG

Tesla Inc. Nasdaq: TSLA

Jazz Pharmaceuticals plc Nasdaq: JAZZ

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