Morning Commentary: Nikola convertible notes price, see volatile trading on debut

By Abigail W. Adams

Portland, Me., Dec. 8 – The convertibles primary market capped an active week for new deal activity with one deal pricing.

Nikola Corp. priced a downsized $175 million of three-year green convertible notes after the market close on Thursday at par with a coupon of 8.25% and an initial conversion premium of 20%.

Pricing came at the cheap end of price talk for a coupon of 7.75% to 8.25% and an initial conversion premium of 20% to 25%, according to a market source.

The offering was an interesting test for the market with Nikola a highly speculative credit with a profile that investors remain wary of despite the recent rally in the market.

While the four other convertible bond deals to price during the Dec. 4 week played to strong demand, Nikola struggled.

The offering downsized from the initial $200 million and the greenshoe, which was initially $30 million, was removed.

The convertible notes priced alongside a follow-on offering of 133,333,334 shares at a public offering price of $0.75.

The convertible notes were volatile on their aftermarket debut.

They traded as low as 93.5 to 94 pre-market but popped above par after the opening bell with stock in the green, a source said.

The notes changed hands at 100.25 in some scattered round-lot trades early in the session although volume was light.

There was $3 million in reported volume about one hour into the session.

The pre-market trades were odd lots with the notes most likely placed in “shaky hands,” a source said.

Nikola’s stock briefly traded in the green after the opening bell but gave back early gains to trade at $0.75, a decrease of 0.20% from Thursday’s closing price and flush with the follow-on offering price, shortly before 11 a.m. ET.

Nikola’s stock sank more than 20% the previous session to fall well below the $1 Nasdaq listing requirement.

If Nikola’s stock remains below $1 for 30 consecutive trading days, the company will be served a deficiency notice and given 180-days to remedy the situation or face a delisting.

Nikola may be forced to do a reverse stock split to remedy the situation, a source said.

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