Morning Commentary: 2U below par on secondary debut; Inphi convertible offering eyed

By Abigail W. Adams

Portland, Me., April 21 – The convertible primary market continued its steady pace of new deal activity with another overnight offering on deck.

Inphi Corp. plans to price $330 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.75% to 1.25% and an initial conversion premium of 27.5% to 32.5%.

The deal was being marketed with assumptions of 500 basis points over Libor and a 40% vol., according to a market source.

Using those assumptions, the deal modeled about 4.41 points cheap at the midpoint of talk, a source said.

However, another source pegged assumptions at 700 bps over Libor and a 45% vol., which eroded the cheapness of the deal.

However, the deal still looked 2.13 points cheap at the midpoint of talk with the wider credit spread.

In normal circumstances, the 500 bps credit spread would have been warranted.

However, the Santa Clara, Calif.-based semiconductor company has significant exposure to Asia with one-third of its revenue coming from China and a substantial amount of additional sales in other Asian countries, the source said.

Meanwhile, as market players eyed the new offering on deck, 2U, Inc.’s newly priced 2.25% convertible notes due 2025 hit the secondary space on another brutal day for equities.

2U priced an upsized $330 million five-year convertible notes after the market close on Monday at par at the midpoint of talk with a coupon of 2.25% and an initial conversion premium of 27.5%.

Price talk was for a coupon of 2% to 2.5% and an initial conversion premium of 25% to 30%, according to a market source.

The greenshoe was also upsized to $50 million. The initial size of the offering was $300 million with a greenshoe of $45 million.

The new notes dropped below par as its equity tanked early in the session.

The notes were changing hands at 98.625 about one hour into the session with stock off more than 4%.

Stock dropped more than 8% shortly after the opening bell but pared its losses as the session progressed.

2U stock traded to a low of $20.25 and a high of $21.47 early in the session. It was changing hands at $21.18, a decrease of 4.38%, shortly before 11 a.m. ET.

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