Morning Commentary: Spotify exchangeables eyed; $2.1 billion of paper floods secondary

By Abigail W. Adams

Portland, Me., Feb. 25 – New convertibles paper was in focus on Thursday with one large $1.3 billion offering on deck and $2.1 billion in new paper flooding the secondary space.

Spotify Technology SA plans to price $1.3 billion of five-year notes exchangeable for Spotify USA Inc. stock after the market close on Thursday.

The offering looked rich based on underwriters’ assumptions, sources said.

As market players eyed the new deal in the works, $2.1 billion in new paper entered the secondary space after a flurry of deals priced post-close Wednesday.

In overnight offerings, Green Plains Inc. priced an upsized $200 million of six-year convertible notes and Chefs’ Warehouse Inc. sold a $50 million tap of its 1.875% convertible notes due 2024.

Enphase Energy Inc. priced an upsized $1.15 billion of convertible notes in five- and seven-year tranches and Halozyme Therapeutics Inc. sold an upsized $700 million of six-year convertible notes after the market close on Wednesday.

Enphase and Halozyme were in focus in the secondary space. However, the new issues were under pressure as the sell-off in equities resumed.

Spotify eyed

Spotify Technology plans to price $1.3 billion of five-year notes exchangeable for Spotify USA stock after the market close on Thursday with price talk for a fixed coupon of 0% and an initial exchange premium of 65% to 75%.

The deal was heard to be in the market with assumptions of 175 basis points over Libor and a 45% vol., according to a market source.

Using those assumptions, the fair value of the deal modeled out to 99.58 at the midpoint of talk, a source said.

Overnight

Green Plains priced an upsized $200 million, from $150 million, of six-year convertible notes after the market close on Wednesday at par at the midpoint of talk with a coupon of 2.25% and an initial conversion premium of 37.5%.

Price talk was for a coupon of 2% to 2.5% and an initial conversion premium of 35% to 40%, according to a market source.

The offering priced concurrently with a secondary offering of 7.61 million shares, which priced with a reoffer price of $23.00.

The new paper skyrocketed out of the gate.

The notes were changing hands at 105 about one hour after the opening bell.

Green Plains’ stock was changing hands at $24.90, a decrease of 4.36%, shortly before 11 a.m. ET.

Chefs’ Warehouse sold a $50 million tap of its 1.875% convertible notes due 2024 with a reoffer price of 103.5 and an initial conversion price of 32.3%.

Pricing came at the midpoint of talk for a reoffer price of 103 to 104, according to a market source.

Enphase contracts

Enphase Energy sold an upsized $1.15 billion of convertible notes in five- and seven-year tranches after the market close on Wednesday.

The deal consists of an upsized $575 million tranche of five-year notes, which priced at par with a coupon of 0% and an initial conversion premium of 70%.

Pricing came at the rich end of initial talk for a coupon of 0% to 0.25% and richer than initial talk for an initial conversion premium of 60% to 65%, according to a market source.

The deal also consists of an upsized $575 million tranche of seven-year notes, which priced at par with a coupon of 0% and an initial conversion premium of 57.5%.

Pricing came at the rich end of initial talk for a coupon of 0% to 0.5% and richer than initial talk for an initial conversion of 50% to 55%.

Concurrently, the company entered into privately negotiated transactions to repurchase $25,546,000 of the principal amount of its 1% convertible notes due 2024 and $217.74 million of the principal amount of its 0.25% convertible notes due 2025.

The 1% notes were repurchased for $25,546,000 in cash and 1,105,199 shares; the 0.25% notes were repurchased for $217.74 million in cash and 1,673,532 shares.

The notes hit the secondary space as the sell-off in equities resumed. Both tranches were down 0.25 point dollar-neutral, a source said.

Enphase’s stock traded down to $174.23, a decrease of 3.74%, shortly before 11 a.m. ET.

Halozyme volatile

Halozyme Therapeutics priced an upsized $700 million of six-year convertible notes after the market close on Wednesday at the rich end of talk at par with a coupon of 0.25% and an initial conversion premium of 50%.

Price talk was for a coupon of 0.25% to 0.75% and an initial conversion premium of 45% to 50%, according to a market source.

The company will enter into privately negotiated transactions with certain holders of its 1.25% convertible notes due 2024 to exchange the notes for $370.2 million in cash and 9.08 million shares of stock.

The notes were volatile in the secondary space.

They traded to a high of 102 and a low of 97.75 within an hour after the opening bell.

The notes were changing hands at 98.5 shortly before 11 a.m. ET.

Halozyme’s stock was taking a beating early in the session. Stock was down to $47.14, a decrease of 8.38%, shortly before 11 a.m. ET.

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