Halozyme convertibles on tap; Dropbox eyed, talk tightened; MicroStrategy tanks outright

By Abigail W. Adams

Portland, Me., Feb. 23 – The convertibles primary market continued to roll out deals as volatility again roiled equity markets.

Halozyme Therapeutics Inc. plans to price $500 million of six-year convertible notes after the market close on Wednesday with price talk for a coupon of 0.25% to 0.75% and an initial conversion premium of 45% to 50%, according to a market source.

BofA Securities Inc., Evercore Inc., J.P. Morgan Securities LLC and SVB Leerink LLC are bookrunners for the Rule 144A offering, which carries a greenshoe of $75 million.

Dropbox Inc. plans to price $1.135 billion of convertible notes in five- and seven-year tranches, according to a market source.

The deal was in demand during bookbuilding despite a brutal sell-off in the tech sector with price talk for the five-year notes tightening and the seven-year notes heard to be pricing on the rich end of talk.

Meanwhile, it was a volatile day in the secondary space as convertible issuers saw enormous price swings in their equity alongside the broader market.

Equity indexes launched the day deep in the red with concern over rising Treasury yields and inflation sparking a flight from risk assets – in particular, a flight from the high-flying tech companies that populate the convertibles universe.

However, equities staged a remarkable rebound following Federal Reserve chairman Jerome Powell’s testimony to Congress with investor’s fears temporarily assuaged.

The Dow Jones industrial average and the S&P 500 closed the day in the green.

While the Nasdaq composite remained down on the day, it pared its losses from almost 2% early in the session to 0.5% at the market close.

While equities staged a rebound, Bitcoin did not with the cryptocurrency falling more than 11% to $47,846.10 at the close of equity markets.

The falling price of Bitcoin continued to drag down MicroStrategy Inc.’s recently priced 0% convertible notes due 2027, which sank well below par in high-volume activity.

However, the notes continued to expand dollar-neutral on the move down.

Dropbox in demand

Dropbox plans to price $1.135 billion of convertible notes in five- and seven-year tranches after the market close on Tuesday.

The deal consists of a $567.5 million tranche of five-year convertible notes.

Price talk tightened to a fixed coupon of 0% and an initial conversion premium of 60% to 65%.

Initial price talk was for a fixed coupon of 0% and an initial conversion premium of 55% to 60%.

The deal also consists of a $567.5 million tranche of seven-year convertible notes with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 47.5% to 52.5%.

The five-year notes were being marketed with assumptions of 200 basis points over Libor and a 42% vol., according to a market source.

Using those assumptions, the deal looked 1.04 points cheap at the midpoint of talk.

The seven-year notes were being marketed with assumptions of 225 bps over Libor and a 40% vol., which modeled out to fair value at the midpoint of talk, a source said.

While some sources were hopeful the seven-year tranche would price at the cheap end of talk due to their richness compared to the five-year notes, they were heard to be coming on the rich end of talk.

The deal from the file sharing company was in demand despite the brutal sell-off in the tech sector over the past two days.

However, the company is a solid credit and able to generate free cash flow, a source said.

MicroStrategy active

MicroStrategy’s 0% convertible notes due 2027 tanked on an outright basis as stock got pummeled on the plummeting price of Bitcoin.

The 0% convertible notes traded as low as 93.5 early in the session after closing the previous session at 101.875.

Another source saw them changing hands on a 94-handle.

While the notes plummeted outright, they continued to gain dollar-neutral with the notes out another 0.5 point, a source said.

MicroStrategy’s stock traded to a high of $801.58 and a low of $660 before closing the day at $691.23, a decrease of 21.09%.

The company’s stock follows the price of Bitcoin, which plunged more than 11% on Tuesday with the cryptocurrency now firmly below the $50,000 threshold.

Mentioned in this article:

Dropbox Inc. Nasdaq: DBX

Halozyme Therapeutics Inc. Nasdaq: HALO

MicroStrategy Inc. Nasdaq: MSTR

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