Global Blood rips on debut as hedge funds miss out; Luminar crumbles; Vroom hits new low

By Abigail W. Adams

Portland, Me., Dec. 15 – There was an uptick of activity in the convertibles secondary space on Wednesday as $850 million in new supply entered the market and volatility continued to rock equities amid the latest announcement from the Federal Reserve.

Global Blood Therapeutics Inc. priced an upsized $300 million of seven-year convertible notes and Luminar Technologies Inc. sold an upsized $550 million of five-year convertible notes after the market close on Tuesday.

The new paper moved in opposite directions in the secondary space with Global Blood Therapeutics ripping higher on debut but Luminar crumbling, sources said.

However, hedge funds were heard to have been cut out of allocations for Global Blood Therapeutics, which contributed to the surge in stock that bolstered the convertible notes.

Outside of the recent issues, several outstanding issues saw high-volume activity on Wednesday amid the market volatility.

While equity benchmarks launched the day in the red, they closed firmly in the green with the Federal Reserve’s roll-back of stimulus, while accelerated, largely falling in line with market expectations.

The Dow Jones industrial average closed the day up 383 points, or 1.08%, the S&P 500 index closed up 1.63%, the Nasdaq Composite closed up 2.15% and the Russell 2000 index closed up 1.65%.

Chair Jerome Powell announced the Federal Reserve would accelerate the rate of bond tapering with March 2022 eyed as the end of the program.

Officials also set the stage for three rate hikes in the coming year.

While the market rallied following the announcement, growth stocks remained under pressure.

Vroom Inc.’s 0.75% convertible notes due 2026 continued their downward spiral on Wednesday with the notes firmly in distressed territory.

Global Blood surges

Global Blood Therapeutics priced an upsized $300 million seven-year convertible notes after the market close on Tuesday at par at the cheap end of talk with a coupon of 1.875% and an initial conversion premium of 27.5%.

Price talk was for a coupon of 1.375% to 1.875% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The greenshoe was also upsized to $45 million.

The initial size of the deal was $250 million with a greenshoe of $37.5 million.

The new paper ripped on debut.

The 1.875% convertible notes traded as high as 109 on an outright basis as stock surged upwards of 8%.

They were changing hands at 108.75 versus a stock price of $26.90 in the late afternoon.

The notes expanded 4 to 5 points dollar-neutral, sources said.

However, hedge funds were heard to have been cut out of allocations.

The short covering that resulted caused the surge in the stock that lifted the convertible notes.

“Stock is ripping just like guys got their face ripped off,” a source said.

While Global Blood’s 1.875% convertible notes skyrocketed on Wednesday, “guys are not making money,” the source said.

The notes dominated activity in the secondary space with $82 million in reported volume about one hour before market close.

Global Blood’s stock traded to a high of $28.36 and a low of $26.06 before closing the day at $28.20, an increase of 13.25%.

Stock hit its 52-week low of $24.61 on Tuesday.

Luminar sinks

Luminar Technologies priced an upsized $550 million of five-year convertible notes after the market close on Tuesday at par at the cheap end of talk with a coupon of 1.25% and an initial conversion premium of 32.5%.

Price talk was for a coupon of 0.75% to 1.25% and an initial conversion premium of 32.5% to 37.5%.

The greenshoe remained $75 million. The initial size of the offering was $500 million.

The new 1.25% notes “crumbled” on their aftermarket debut, a source said.

The notes traded down to 96 bid, 97 offered early in the session. They hit as low as 95 mid-session but rallied as stock improved alongside the broader market.

The notes were changing hands at 98.375 versus a stock price of $14.70 in the late afternoon.

They contracted 1 point on a dollar-neutral basis, a source said.

However, volume was light with $11 million on the tape about one hour before the market close.

Luminar’s stock traded to a high of $15.26 and a low of $13.76 before closing the day at $15.07, a decrease of 0.066%.

Proceeds from the convertible notes will be used, in part, to repurchase up to $275 million, or $312.5 million if the greenshoe is exercised in full, of the company’s class A common stock at a purchase price of $15.08.

While “Happy Meal” deals, or convertible notes offerings that include a stock buyback, tend to perform well in the aftermarket, Luminar’s stock buyback was not a traditional “Happy Meal.”

Luminar executives were purchasing the stock due to the belief that it was undervalued as a result of the SPAC deal that made it public.

However, the stock buyback raised some eyebrows.

“This is a company that’s losing money,” a source said. “Don’t they have a better way to deploy capital?”

Vroom’s new low

Vroom’s 0.75% convertible notes due 2026 continued their downward spiral on Wednesday with stock and the convertible notes hitting new lows.

The 0.75% notes fell about 7 points outright with stock off as much as 6%.

The notes traded down to a 60-handle in intraday activity but were bouncing off their lows as stock recovered in the late afternoon.

The notes traded up to 61 heading into the close.

There was about $25 million in reported volume.

Vroom’s stock was volatile alongside broader markets on Wednesday. While it set a new 52-week low in intraday activity, it closed the day in the green.

Vroom’s stock traded to a high of $11.06 and a 52-week low of $10.18 before closing the day at $10.93, an increase of 0.37%.

The e-commerce platform for used vehicles was particularly hard hit as growth stocks came under pressure.

Stock has cratered more than 70% since Vroom priced the $625 million issue at par in June.

The company has the highest rate of cash burn among any convertible note issuer, a source said.

Mentioned in this article:

Global Blood Therapeutics Inc. Nasdaq: GBT

Luminar Technologies Inc. Nasdaq: LAZR

Vroom Inc. Nasdaq: VRM

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