Uniti on tap; Axon, Herbalife convertibles eyed; Lantheus, Marriott expand on debut

By Abigail W. Adams

Portland, Me., Dec. 6 – The convertibles primary and secondary markets were hopping on Tuesday as the long-anticipated end-of-year issuance rush came to pass.

The primary market is slated to price one $300 million deal after the market close on Wednesday and two deals totaling $750 million after the market close on Tuesday after pricing $1 billion in two deals post-close on Monday.

Uniti Group Inc. plans to sell $300 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 7% to 7.5% and an initial conversion premium of 20% to 25%, according to a market source.

Goldman Sachs & Co. LLC, Citigroup Global Markets Inc. and Morgan Stanley & Co. LLC are bookrunners for the Rule 144A offering, which carries a greenshoe of $45 million.

Axon Enterprise Inc. plans to price $500 million of five-year convertible notes and Herbalife Nutrition Ltd. plans to sell $250 million of long five-year convertible notes after the market close on Tuesday.

The deals continued to model cheap based on underwriters’ assumptions and were playing to heavy demand during bookbuilding, sources said.

Meanwhile, the secondary space was busy with new paper from Lantheus Holdings Inc. and Marriott Vacations Worldwide Corp. making their aftermarket debut, topical news sparking activity in outstanding issues, and large, end-of-quarter index rotation trades hitting the tape.

There was $200 million in reported volume about one hour into the session and $715 million on the tape about one hour before the market close.

Equity indexes continued to see heavy selling pressure with the Dow Jones industrial average closing Tuesday down 351 points, or 1.03%, the S&P 500 index down 1.44%, the Nasdaq Composite index down 2% and the Russell 2000 index down 1.5%.

The new paper was putting in a strong performance despite the red tape with Lantheus’ 2.625% convertible notes due 2027 and Marriott’s 3.25% convertible notes due 2027 making large dollar-neutral gains.

While volume in the name was light, Gossamer Bio Inc.’s 5% convertible notes due 2027 saw the largest price movement on Tuesday – to the downside.

The 5% notes plunged about 50 points outright and contracted 10 points dollar-neutral following disappointing results from a clinical trial.

Axon in focus

Axon Enterprise plans to price $500 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.5% to 1% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of a 300 basis points credit spread and a 42% vol., a source said.

Using those assumptions, sources pegged the deal about 2 to 3 points cheap at the midpoint of talk.

The coupon range is significantly lower than the recent deals to clear the primary market.

However, Axon is a $13 billion market cap company with cash on the balance sheet and no debt, a source said.

The deal was heard to be playing to heavy demand.

Herbalife eyed

Herbalife plans to price $250 million of long five-year convertible notes after the market close on Tuesday with price talk for a coupon of 3.75% to 4.25% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of a 900 bps credit spread and a 45% vol., according to a market source.

Using those assumptions, the deal looked just north of 3 points cheap at the midpoint of talk, a source said.

While the deal is a refinancing with proceeds to be used to repurchase for cash a portion of the company’s 2.625% convertible notes due 2024 in privately negotiated transactions, the offering was not wall-crossed, a source said.

The 2.625% notes traded as high as 93.5 on Tuesday after several trades at 92 post-close on Monday, according to Trace data.

Lantheus in demand

Lantheus Holdings priced $500 million of five-year convertible notes after the market close on Monday at par at the rich end of talk with a coupon of 2.625% and an initial conversion premium of 42.5%.

Price talk was for a coupon of 2.625% to 3.125% and an initial conversion premium of 37.5% to 42.5%, according to a market source.

The deal played to heavy demand during bookbuilding and surged in secondary market activity.

The notes were marked at 104.5 bid, 104.75 offered with stock largely flat early in the session, a source said.

They were changing hand at 104.375 versus a stock price of $55.22 in the late afternoon.

The notes expanded 4 points dollar-neutral, a source said.

Lantheus’ stock traded to a high of $57.33 and a low of $54.84 before closing the day at $55.48, a decrease of 0.95%.

Marriott Vacations volatile

Marriott Vacations sold $500 million of five-year convertible notes after the market close on Monday at par at the rich end of talk with a coupon of 3.25% and an initial conversion premium of 32.5%.

Price talk was for a coupon of 3.25% to 3.75% and an initial conversion premium of 27.5% to 32.5%.

The new paper played to heavy demand during bookbuilding and “came out of the box hot,” a source said.

However, the convertibles came in as the session progressed.

The 3.25% notes were marked at 103.125 bid, 103.625 offered early in the session with stock wavering between gains and losses early in the session.

The notes traded back down to a par handle and were marked at 100 bid, 100.75 offered in the mid-afternoon.

While volatile outright, the notes maintained a large dollar-neutral expansion and were up 1 to 1.25 points on hedge.

Marriott’s stock traded to a high of $145.08 and a low of $136.75 before closing the day at $138.20, a decrease of 3.42%.

Gossamer ‘collapses’

Gossamer’s 5% convertible notes due 2027 were once again the convertible secondary space’s disaster du jour with the notes plummeting on an outright and dollar-neutral basis.

The 5% notes plunged 50 points outright to 34.625 after previously trading around 82.

They contracted 9 to 10 points dollar-neutral.

“They collapsed,” a source said. “That’s negative gamma.”

Gossamer’s stock traded to a high of $3.55 and a low of $2.15 before closing the day at $2.36, a decrease of 74.60%.

There was a fire sale in the biotech company’s capital structure after it released what many saw as disappointing results from a Phase 2 clinical trial for a hypertension drug.

Mentioned in this article:

Axon Enterprise Inc. Nasdaq: AXON

Gossamer Bio Inc. Nasdaq: GOSS

Herbalife Nutrition Ltd. NYSE: HLF

Lantheus Holdings Inc. Nasdaq: LNTH

Marriott Vacations Worldwide Corp. NYSE: VAC

Uniti Group Inc. Nasdaq: UNIT

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