Cytokinetics convertibles on tap; Aspen Aerogels cancels; Carnival, Royal Caribbean sink

By Abigail W. Adams

Portland, Me., June 29 – With the final day of the second quarter closing in, the convertibles primary market had two new offerings on deck, although one was canceled late in the day.

Cytokinetics Inc. plans to price $450 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 3% to 3.5% and an initial conversion premium of 30% to 35%, according to a market source.

Cantor Fitzgerald & Co. is lead left bookrunner for the Rule 144A offering, which carries a greenshoe of $90 million.

Aspen Aerogels, Inc. had plans to price $150 million of five-year green convertible notes after the market close on Wednesday, but announced the deal was off.

The deal modeled extremely cheap, a necessity given the company’s credit, and was heard to be pricing at the midpoint of talk, sources said.

Meanwhile, the secondary space continued to see low volume heading into the final day of the quarter as equities wavered between gains and losses before closing mixed.

The Dow Jones industrial average closed up 82 points, or 0.27%, the S&P 500 index closed down 0.07%, the Nasdaq Composite index closed down 0.03% and the Russell 2000 index closed down 1.12%.

There was $64 million in reported convertibles trading volume about one hour into the session and $397 million on the tape about one hour before the market close.

While volume was light, topical news was driving large movements in the space.

Carnival Corp.’s 5.75% convertible notes due 2023 fell on an outright and dollar-neutral basis with the company’s capital structure under pressure after a Morgan Stanley analyst report.

The report, which outlined the difficulties the company will face securing sustainably priced refinancing, hit the sector with Royal Caribbean Cruises Ltd.’s convertible notes also moving lower.

Meanwhile, 2U, Inc.’s 2.25% convertible notes due 2025 surged while Chegg Inc.’s convertible notes weakened following news Indian education technology company Byju had decided on 2U as its acquisition target.

Aspen eyed

Aspen planned to price $150 million of five-year green convertible notes after the market close on Wednesday with price talk for a coupon of 6% to 6.5% and an initial conversion premium of 22.5% to 27.5%.

The company withdrew the deal, citing market conditions that were not conducive for terms that were in the best interest of shareholders.

The deal was in the market with assumptions of 1,250 basis points over Libor and a 45% vol.

Using those assumptions and assuming a 1% borrowing cost, the deal looked 7.17 points cheap at the midpoint of talk, a source said.

Another source saw the deal as about 8 points cheap.

While the credit spread was wide, some sources questioned whether it was wide enough, given the size of the capital raise and the aerogel manufacturer’s market cap of $530.75 million.

The deal had a lot of moving parts, a source said.

It was pricing concurrently with a $225 million secondary offering, which would help with the borrow, sources said. The secondary offering was also canceled.

The deal, which was heard to be wall crossed and oversubscribed at the time of launch, played to solid demand during bookbuilding.

The deal was heard to be pricing at the midpoint of talk, a source said.

Cruise lines sink

It was a rough ride for cruise line operators on Wednesday after a Morgan Stanley analyst released a report illustrating a scenario that could drive Carnival’s stock to $0.

The report drove Carnival’s stock down 15% and dragged down industry peers.

Carnival’s 5.75% convertible notes due 2023 were weaker on an outright and dollar-neutral basis with the company’s credit blowing out.

The 5.75% convertible notes fell 4 points outright.

The notes were changing hands at 113 versus a stock price of $8.84 in the late afternoon.

There was $13 million in reported volume.

Carnival’s stock traded to a high of $9.60 and a low of $8.66 before closing the day at $8.87, a decrease of 14.22%.

Royal Caribbean’s 4.25% convertible notes due 2023 and 2.875% convertible notes due 2023 were also lower outright.

The 4.25% convertible notes fell 2.5 points outright to close the day at 95.875 with the yield 8.878%.

The 2.875% convertible notes were down 2 points to 91.125 in the late afternoon with the yield brushing up against 10%.

While the short-duration, high-premium notes trade for their yield, Royal Caribbean’s stock closed the day at $36.02, a decrease of 10.26%.

Byju’s buyout

2U’s 2.25% convertible notes due 2025 surged while Chegg’s convertible notes weakened after news broke that an Indian education technology company had submitted a takeover bid to 2U’s board of directors.

Byju had been considering a takeover of either 2U or Chegg, according to previous media reports.

2U’s 2.25% convertible notes jumped 10 points outright to trade as high as 86.5.

2U’s stock traded to a high of $11.81 and a low of $10.58 before closing the day at $10.92, an increase of 17.42%.

Chegg’s convertible notes were weaker on the news.

Chegg’s 0% convertible notes due 2026 traded down 1 point outright to 73.

Chegg’s stock traded to a high of $18.32 and a low of $17.68 before closing the day at $18.28, a decrease of 0.38%.

Byju was reported to have submitted a $1 billion or $15 per share takeover bid to 2U’s board of directors.

If accepted, the takeover would most likely be in cash and trigger a change-of-control par put for 2U’s convertible notes.

Mentioned in this article:

2U, Inc. Nasdaq: TWOU

Aspen Aerogels, Inc. NYSE: ASPN

Carnival Corp. NYSE: CCL

Chegg Inc. NYSE: CHGG

Cytokinetics Inc. Nasdaq: CYTK

Royal Caribbean Cruises Ltd. NYSE: RCL

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