i3 Verticals, Barclays synthetic on tap; Collegium notes expand; Revance, DISH eyed

By Abigail W. Adams

Portland, Me., Feb. 11 – The active convertibles new issue pipeline many had been waiting for began to materialize during the Feb. 10 week with one new deal hitting the secondary space on Tuesday, one more set to price after the market close and two on deck for post-close Wednesday.

i3 Verticals LLC plans to price $100 million five-year exchangeable notes after the market close on Wednesday with price talk for a coupon of 0.75% to 1.25% and an initial exchange premium of 27.5% to 32.5%, according to a market source.

The notes are exchangeable for i3 Verticals Inc. common shares.

BofA Securities is the bookrunner for the Rule 144A offering, which carries a greenshoe of $15 million.

In another synthetic offering, Barclays Bank plc plans to price $250 million cash-settled equity linked notes tied to Visa Inc. after the market close on Wednesday with price talk for a coupon of 0%, an initial conversion premium of 20% and a reoffer price of 104 to 104.5, according to a market source.

Revance Therapeutics Inc. plans to sell $200 million of seven-year convertible notes after the market close on Tuesday.

The deal modeled cheap although the company was highly speculative, sources said.

Meanwhile, the secondary space was active on Tuesday with new paper and topical news spurring trading activity.

Collegium Pharmaceutical, Inc. priced $125 million of six-year convertible notes after the market close on Monday.

The new paper was making large gains on both an outright and dollar-neutral basis on its secondary market debut, sources said.

DISH Network Corp.’s convertible notes were in focus and making large gains on a dollar-neutral basis following news of a court ruling in favor of the T-Mobile/Sprint merger, which cleared one of the final hurdles to closing the deal.

Luckin Coffee Inc.’s 0.75% convertible notes due 2025 were again active on Tuesday with the notes improving as stock continued to rebound from coronavirus and short-seller induced weakness.

Collegium expands

Collegium Pharmaceutical’s newly priced convertible notes were active and making large gains on both an outright and dollar-neutral basis on Tuesday.

Collegium priced $125 million of six-year convertible notes after the market close on Monday at the rich end of talk with coupon of 2.625% and an initial conversion premium of 35%.

Price talk had been for a coupon of 2.625% to 3.125% and an initial conversion premium of 30% to 35%, according to a market source.

The new paper skyrocketed in the secondary space.

The notes traded as high as 105.5 soon after the opening bell but were changing hands around 104.75 with stock flat about one hour into the session.

They were expanded 4 points dollar-neutral in the late afternoon, a market source said. Another source saw the notes close out the day with a 3.875 points dollar-neutral expansion.

“People love it,” a source said.

Collegium’s stock traded to a high of $22.32 and a low of $21.16 before closing the day at $222.21, an increase of 2.73%.

The deal modeled only slightly cheap based on underwriters’ assumptions of 850 basis points over Libor and a 40% vol.

However, underwriters may have been conservative with those assumptions, a market source said.

“It usually doesn’t model out to fair value when they trade up like this,” the source said.

Collegium does have a proven track record and does produce some revenue, so a tighter credit spread may have been warranted, the source said.

Revance eyed

As new paper from Collegium skyrocketed in the aftermarket, more new paper from the biotech sector was in the works.

Revance Therapeutics plans to price $200 million of seven-year convertible notes after the market close on Tuesday with price talk for a coupon of 1.75% to 2.25% and an initial conversion premium of 27.5% to 32.5%.

Using assumptions of 700 bps over Libor and a 45% vol., the deal modeled about 2.5 points cheap at the midpoint of talk, a market source said.

While other sources felt the credit spread could be tighter, which would increase the cheapness of the deal, Revance is a “highly speculative company,” a market source said.

The company does not generate much revenue and has negative earnings per share.

Sources in favor of the company admit that it does most likely have a couple more years of losses before it turns a profit.

However, some of its clinical trials are far in the process and the company does have good visibility, a source said.

Proceeds from the offering will be used to fund the commercial launch and pre-commercialization of its dermal filler products.

The biotech company hopes to position itself as a leader in the U.S. facial injectable market, which is valued at $2 billion.

Revance stock has had some “crazy moves” in recent days, a source said.

Stock was up 13% last week but was down almost 9% on Tuesday on news of the convertible notes offering.

The borrow on the stock is good, sources said.

DISH expands

Outside of new paper, DISH Network’s convertible notes were making large gains in high-volume activity following news a federal judge had approved the T-Mobile/Sprint merger.

DISH’s 2.375% notes due 2024 traded north of 95 on the news. The 3.375% convertible notes due 2026 topped par for the first time in recent history.

The 3.375% notes traded north of 102 soon after the opening bell but was changing hands at 100.625 about one hour into the session.

The notes were wrapped around 101 in the late afternoon.

Both issues were expanded about 2 points dollar-neutral, a market source said.

DISH stock traded to a low of $38.17 and a high of $41.50 before closing the day at $39.48, an increase of 7.14%.

The satellite broadcaster will purchase some divested assets from T-Mobile and Sprint to launch its own mobile network.

DISH becoming a wireless network operator was a key component to Sprint and T-Mobile wining regulatory approval for the merger.

Luckin Coffee improves

Luckin Coffee’s 0.75% convertible notes due 2025 were again active in the secondary space with the notes improving on both an outright and dollar-neutral basis.

The 0.75% notes jumped more than 5 points on an outright basis. They were changing hands just north of 94.25 in the late afternoon.

The notes were improved about 1 point dollar-neutral, a market source said. However, the expansion was largely determined by the delta used, which varies widely.

Luckin Coffee’s ADS traded to a low of $37.42 and a high of $39.19 before closing the day at $38.15, an increase of 3.47%.

While the notes were still trading cheaper than issue price, “the disaster side of it is gone,” a market source said.

While Luckin Coffee’s convertible notes saw a meteoric rise after pricing, reaching as high as 115 on an outright basis, the notes saw a massive sell-off which drove them into the low 80s.

The sell-off was sparked by an anonymous report accusing the Beijing-based coffee shop chain of financial irregularities, which was supported by short-seller Muddy Waters Capital, in addition to concern over the coronavirus.

Mentioned in this article:

Collegium Pharmaceutical, Inc. Nasdaq: COLL

DISH Network Corp. Nasdaq: DISH

i3 Verticals Inc. Nasdaq: IIIV

Luckin Coffee Nasdaq: LK

Revance Therapeutics Inc. Nasdaq: RVNC

Visa Inc. NYSE: V

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