Sea, GCI, Restoration Hardware on tap; Intelsat dominates, expands on debut; Twitter active

By Abigail W. Adams

Portland, Me., June 12 – The convertibles primary and secondary space were both active on Tuesday with three new deals launched after the market close and new paper from Intelsat SA dominating trading activity in the secondary market.

Sea Ltd. is planning a $400 million offering of five-year convertible senior notes, according to a press release. Further details were not available by press time.

GCI Liberty, Inc. plans to price $350 million of exchangeable senior debentures due 2046 tied to Charter Communications, Inc. stock after the market close on Wednesday.

Price talk is for a coupon of 1.375% to 1.875% and an initial conversion premium of 30% to 35%, according to a market source.

J.P. Morgan Securities LLC, Deutsche Bank Securities Inc. and Citigroup Global Markets Inc. are the joint bookrunners for the Rule 144A deal, which carries a greenshoe of $52.5 million.

Restoration Hardware Inc. plans to price $300 million of five-year convertible notes after the market close on Wednesday with price talk for a fixed coupon of 0% and an initial conversion premium of 25% to 30%, according to a market source.

BofA Merrill Lynch is the bookrunner for the Rule 144A deal, which carries a greenshoe of $50 million.

Restoration Hardware’s new convertible notes offering comes on the heels of an active day in the secondary space for the company’s outstanding 0% convertible notes due 2019 and 2020.

The notes “exploded” with large gains on both an outright and dollar-neutral basis, a market source said.

The secondary market was hopping on Tuesday with more than $720 million on the tape by late afternoon – the majority of trading action belonged to Intelsat’s new 4.5% convertible notes due 2025.

The convertible notes expanded 5 points dollar neutral out of the gate and traded as high as 112 outright, market sources said. “They were off to the races,” a source said.

Twitter Inc.’s recently priced 0.25% convertible notes due 2024 were also active with the notes up outright as the company stock again set a new 52-week high.

Intelsat in focus

Intelsat priced an upsized $350 million of seven-year convertible notes after the market close on Monday with a coupon of 4.5% and an initial conversion premium of 22.5%.

Pricing came richer than talk for a coupon of 4.75% to 5.25% and at the rich end of talk for an initial conversion premium of 17.5% to 22.5%, according to a market source.

The deal had received upwards of $1 billion of orders at the rich end of talk, a market source said.

The initial size of the deal was $300 million. The greenshoe was also upsized to $52.5 million from $45 million.

The new 4.5% convertible notes due 2025 dominated trading activity in the secondary space with more than $90 million of the bonds changing hands less than an hour after the opening bell, according to a market source.

They accounted for nearly $126 million of the total trading volume by the late afternoon.

The notes traded as high as 112 during Tuesday’s session with stock up.

They were seen trading at 110.875 versus a stock price of $15.95 by the late afternoon.

The notes were expanded 5 to 6 points on a dollar-neutral basis early in the session, sources said.

While the notes priced richer than coupon talk and at the rich end of talk for an initial conversion premium, they still came 5 to 6 points cheap, the source said.

“This gets them to where they should be,” the source said.

The expansion continued in the afternoon with the notes up almost 7 points dollar neutral, a market source said. Intelsat’s 4.5% notes were moving on about a 65% delta.

The cheapness of the deal combined with the rise in equity created the perfect environment for the notes expansion, a market source said.

Intelsat stock closed Tuesday at $15.97, an increase of 7.61%.

Twitter’s new high

Twitter’s recently priced 0.25% notes due 2024 saw gains on an outright basis but were up only slightly dollar neutral as its stock broke out to a new 52-week high on Tuesday.

The 0.25% notes were up about 2.5 points outright to trade just south of 104 with stock up almost 6% early in Tuesday’s session.

The notes continued to climb outright and were seen trading at 104.283 versus an equity price of $43.96 by late afternoon.

The notes were up about 15 cents on a dollar-neutral basis, a market source said. More than $36 million of the bonds had traded by late afternoon Tuesday.

Twitter’s 1% convertible notes due 2021 also saw some action with $8 million of the bonds on the tape by late afternoon.

The 1% notes were up about 0.5 point outright to trade at 96.25 versus an equity price of $43.58.

Twitter stock closed Tuesday at $43.49, an increase of 5%.

Twitter stock has set a new 52-week high on each of the past three consecutive trading sessions.

The jump in Twitter stock on Tuesday was attributed to JPMorgan analysts raising their price target to $50.00 from $39.00.

Restoration Hardware explodes

Restoration Hardware’s 0% convertible notes due 2019 and 2020 “exploded” on Tuesday with the notes up outright and on a dollar-neutral basis as the stock soared more than 30%.

The 0% convertible notes due 2019 saw a 6-point dollar-neutral expansion on Tuesday, a market source said.

The notes were up almost 25 points outright to trade at 138.779 versus an equity price of $156.92.

The notes were being played for the 2019 put and had a light delta, a market source said.

To have a light delta on the notes and then see the “monster move” in stock that happened on Tuesday, “is your best dream,” the source said.

Restoration Hardware’s 0% convertible notes due 2020 were up about 3.5 points dollar neutral, the source said.

The notes also saw about a 25-point gain outright and were seen trading at 139.5 versus an equity price of $156.69.

The dollar-neutral expansion was not as large as the 0% notes due 2019 because the delta was higher, a source said.

The notes are heavily hedged with a 95% delta and trade like stock, which “has had a crazy run,” another source said.

Restoration Hardware’s convertible notes were trading about 6 to 7 points above parity, the source said.

Stock soared after the company reported an earnings beat in its first-quarter earnings report.

Restoration reported non-GAAP earnings per share of $1.33, beating analyst expectations for earnings of $1.01 per share.

Stock closed Tuesday at $155.00, an increase of 30.55%. Restoration Hardware’s 52-week low was $44.00.

Proceeds from Restoration Hardware’s new convertible notes offering will be used to repay debt.

The company intends to repay the principal balance of its 0% convertible notes due 2019 and 2020 in cash, according to a company news release.

Mentioned in this article:

Charter Communications, Inc. Nasdaq: CHTR

Intelsat SA NYSE: I

Restoration Hardware Inc. NYSE: RH

Sea Ltd. NYSE: SE

Twitter Inc. NYSE: TWTR

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