Bill.com moves up in debut; Booking, Prospect Capital active; American Airlines firm

By Rebecca Melvin

New York, Nov. 25 – The convertibles market was active in the early going on Wednesday and remained fairly busy throughout the session ahead of the U.S. Thanksgiving Day holiday on Thursday when financial markets will be closed.

Bill.com Holdings Inc.’s newly priced 0% convertibles gained in very active trading on an outright basis and expanded on a dollar-neutral basis after the software company priced an upsized $1 billion of the five-year notes at the rich end and beyond the rich end of price talk.

The Bill.com notes expanded 2.5 points to 3 points, according to a New York-based market source. It was very active, accounting for about $136 million of bonds changing hands at late morning, compared to about $235 million of volume in all other names excluding Bill.com, according to a second market source, evaluating Trace data volumes.

Excluding Bill.com, Booking Holdings Inc. was the top volume name of the day. Its 0.75% convertibles due 2025 were seen to have changed hands at 141.75, while the underlying shares of the travel company were down $56.08, or 2.7%, at $2,047.37.

Another top volume name was Prospect Capital Corp. Its 6.375% convertibles due 2025 traded up to 103.5 to 104 into the market close as shares of the business development company were up 0.75% at $5.47 at late morning. Earlier in the session the notes were trading at 102.25 to 102.5, which was up slightly on the say. The underlying stock closed near its high mark for the day, up 10 cents, or 1.8%, at $5.53.

American Airlines Group Inc.’s 6.5% convertible notes due 2025 were higher again on Wednesday. They have been on a tear amid positive Covid-19 vaccine news. On Monday news hit that a Covid-19 vaccine from AstraZenica plc and Oxford University is indicating effectiveness in studies, which makes it a third promising candidate to fight against the virus. The American Airlines convertibles traded at 114 with the underlying shares at nearly $15.00.

Equities overall pulled back slightly from a rally on Tuesday, when the Dow Jones industrial average notched a record high at 30,000. On Wednesday, the Dow closed down 173.77 points, or 0.6%, at 29,872.47; the S&P 500 stock index closed down 5.76 points, or 0.2%, at 12,094.40; and the Nasdaq Stock Market edged up 62 points, or 0.5%, to 12,094.40.

The primary market forward calendar stood empty on the day before the U.S. Thanksgiving Day holiday, but more new deals are expected to price between the Thanksgiving and Christmas holidays.

“The bankers are active, and the expectation is that people may try to get something done. There may be a flurry of activity before Christmas,” a market source said.

Bill.com notes add

The new Bill.com notes changed hands at 103.75 when the underlying shares were up 2.5%.

The company was seen to have been worth 102 in valuations at the midpoint of price talk ahead of final terms being set. One source put a credit spread of 350 basis points over Libor on the valuation, and another source saw the spread at 275 bps. A software company with a $9 billion market capitalization merited the lower spread, the source said.

The new Bill.com convertibles traded up to a 104 handle before averaging out at 103.25 to 103.50, according to a market source.

The Palo Alto, Calif.-based cloud-based software company, which automates back-office financial operations for small and mid-size businesses, priced an upsized $1 billion of the notes due 2025 with a 0% coupon and a 47.5% initial conversion premium.

The issue was initially talked at $750 million in size. The greenshoe for the Rule 144A deal was upsized to $150 million from an initially talked $112.5 million.

Pricing came at the rich end of talk for a 0% to 0.25% coupon, and beyond the rich end of 40% to 45% talk for the initial conversion premium.

Goldman Sachs & Co. LLC, BofA Securities Inc., Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC were joint bookrunners for the offering.

The notes are non-callable for three years and then are provisionally callable after Dec. 5, 2023 if shares exceed 130% of the conversion price for a specified period of time.

There are no puts, and settlement will be in cash, shares or a combination of cash and shares at the issuer’s option.

There is change-of-control protection via a make-whole adjustment premium of incremental shares delivered upon conversion, and also dividend protection via conversion rate adjustment on any quarterly dividends.

In connection with the offering of notes, the company entered into capped call transactions with some of the initial purchasers of the notes.

The proceeds of the new notes will be used to fund the cost of the call spread and for general corporate purposes, which may include working capital, capital expenditures and potential acquisitions and strategic transactions.

Mentioned in this article:

Airlines Group Inc. Nasdaq: AAL

Bill.com Holdings Inc. Nasdaq: BILL

Booking Holdings Inc. Nasdaq: BKNG

Prospect Capital Corp. Nasdaq: PSEC

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