SmileDirectClub, MakeMyTrip convertibles in demand, talk tightens; Pebblebrook eyed

By Abigail W. Adams

Portland, Me., Feb. 4 – The new deal activity that convertible bond market sources were expecting throughout the week came on Thursday with three deals on deck.

SmileDirectClub Inc. plans to price a massively upsized $650 million offering of five-year convertible notes, MakeMyTrip Ltd. plans to sell $175 million of seven-year convertible notes and Pebblebrook Hotel Trust plans to sell a $175 million add-on to its 1.75% convertible notes due 2026 after the market close on Thursday.

SmileDirectClub’s and MakeMyTrip’s offerings were in hot demand during bookbuilding with talk on both deals tightening.

Meanwhile, it was an active day in the secondary space as equity markets continued to rip on the heels of positive earnings reports.

Pinduoduo Inc.’s 0% convertible notes due 2025 were active with the notes reaching their highest outright level since pricing as the Shanghai-based e-commerce company’s ADSs again broke out to a new 52-week high.

SmileDirectClub in demand

SmileDirectClub’s offering of five-year convertible notes was in hot demand during bookbuilding with the deal nearly doubling in size and talk tightening.

SmileDirectClub plans to sell an upsized $650 million, from $350 million, of five-year convertible notes after the market close on Thursday.

Talk tightened to a fixed coupon of 0% and an initial conversion premium of 35% to 40%, according to a market source.

Initial price talk was for a coupon of 0% to 0.5% and an initial conversion premium of 30% to 35%.

The deal was heard to be marketed with assumptions of 400 basis points over Libor and a 54% vol., according to a market source.

Using those assumptions, the deal looked 4.59 points cheap at the midpoint of initial talk.

However, the cheapness was warranted given the large amount of short interest in the name.

About 27.59% of SmileDirectClub’s float is shorted.

While the deal looked cheap based on underwriters’ assumptions, some sources felt they were being aggressive with the credit spread.

Using a credit spread of 600 bps over Libor and a 45% vol., the deal looked 0.25 point rich at the midpoint of initial talk.

The oral care business is in a competitive industry and its balance sheets did not look good, a source said.

The company has negative cash flow which has been trending downward.

However, underwriters may have used a tighter credit spread based on projections for the business, the source said.

MakeMyTrip tightens talk

MakeMyTrip’s offering of $175 million seven-year convertible notes was also in demand during bookbuilding with talk tightening to a fixed coupon of 0% and an initial conversion premium of 35% to 37.5%, according to a market source.

Initial talk was for a coupon of 0% to 0.5% and an initial conversion premium of 30% to 35%, according to a market source.

The deal was heard to be marketed with assumptions of 700 bps over Libor and a 42% vol., a source said.

Using those assumptions, the deal looked 2.41 points cheap at the midpoint of initial talk, a source said.

Pebblebrook add-on

Pebblebrook Hotel plans to price a $175 million add-on to its 1.75% convertible notes due 2026 after the market close on Thursday with price talk for a reoffer price of 104.5 to 105, according to a market source.

The add-on comes a little over one month since Pebblebrook priced a $500 million issue of the 1.75% notes.

The initial offering was marketed with assumptions of 525 bps over Libor and a 35% vol.

However, credit has tightened and vol. has increased since the initial offering, a source said.

One source pegged assumptions for the add-on at 450 bps over Libor and a 45% vol., which modeled out to 9.48 points cheap, which is roughly where the 1.75% notes have been trading, a source said.

The high vol. is unusual for a REIT and usually a sign of a distressed situation, a source previously said.

Pinduoduo’s new heights

Pinduoduo’s 0% convertible notes due 2025 hit their highest outright since pricing as stock again broke out to a new 52-week high.

The notes rose almost 7 points outright.

They were changing hands at 132.5 in the late afternoon, according to Trace data.

Pinduoduo’s stock set a new 52-week high of $204.78 early in the Thursday’s session. Stock traded to a low of 194.18 before closing the day at $197.26, an increase of 2.15%.

Pinduoduo’s ADSs have been on a tear over the past two sessions with the Shanghai-based e-commerce company’s ADSs trading up on the heels of competitor Alibaba Inc.’s blockbuster earnings report.

Pinduoduo’s equity has logged steady gains throughout January as Alibaba wrestles an antitrust probe from China’s regulatory authorities.

Mentioned in this article:

MakeMyTrip Ltd. Nasdaq: MMYT

Pebblebrook Hotel Trust NYSE: PEB

Pinduoduo Inc. Nasdaq: PDD

SmileDirectClub Inc. Nasdaq: SDC

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