Morning Commentary: EZCorp, Uniti convertible offerings eyed; Axon, Herbalife expand

By Abigail W. Adams

Portland, Me., Dec. 7 – The convertibles market remained an active place on Wednesday with two deals totaling $475 million on deck in the primary market and $850 million in new supply entering the secondary space.

Uniti Group Inc. plans to price $300 million of five-year convertible notes and EZCorp Inc. plans to sell $175 million of seven-year convertible notes after the market close on Wednesday.

Both deals are refinancings.

While both offerings were optically attractive with large coupons and low premiums, they valued much tighter than the majority of recent deals to clear the primary market.

Meanwhile, new paper from Axon Enterprise Inc. and Herbalife Nutrition Ltd. hit the secondary space.

The strong demand for Axon’s paper, which drove pricing through initial talk, followed the notes into the secondary space with the notes making large gains on an outright and dollar-neutral basis.

While new paper from Herbalife dropped below par on an outright basis, the notes saw a large dollar-neutral expansion out of the gate.

Uniti eyed

Uniti Group. plans to price $300 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 7% to 7.5% and an initial conversion premium of 20% to 25%.

The deal was heard to be in the market with assumptions of a 900 basis points credit spread and a 40% vol.

Using those assumptions, the deal looked 0.88 to 1.34 points cheap at the midpoint of talk, sources said.

However, the valuation of the deal cheapened dramatically when using a wider vol.

Using a 42% vol., sources pegged the deal as 1.625 points to 2.15 points cheap at the midpoint of talk.

The large conversion ratio made the notes valuation particularly sensitive to vol. inputs, a source said.

The deal is coming as a refinancing with proceeds to be used to repurchase some or all of the $345 million outstanding 4% exchangeable notes due 2024 through open-market transactions, redemptions or tender offers.

EZCorp in focus

EZCorp plans to price $175 million of seven-year convertible notes after the market close on Wednesday with price talk for a coupon of 3.5% to 4% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of an 800 bps credit spread and a 35% vol., a source said.

Using those assumptions, the deal looked 0.54 point cheap at the midpoint of talk, a source said.

The deal is a refinancing with proceeds to be used to repurchase a portion of its 2.875% convertible notes due 2024 and/or its 2.375% convertible notes due 2025 in privately negotiated transactions.

Axon jumps on debut

Axon priced an upsized $600 million of five-year convertible notes after the market close on Tuesday at par with a coupon of 0.5% and an initial conversion premium of 35%.

The deal played to heavy demand during bookbuilding with pricing coming at the rich end of price talk for a coupon of 0.5% to 1% and richer than talk for an initial conversion premium of 27.5% to 32.5%, according to a market source.

The greenshoe was also upsized to $90 million.

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

The notes were hot out of the gate and trading in the 101.75 to 102.75 context on an outright basis.

They expanded 1.25 points dollar-neutral.

Axon’s stock was changing hands at $170.67, an increase of 0.73%, shortly before 11 a.m. ET.

Herbalife down outright

Herbalife sold $250 million of long five-year convertible notes after the market close on Tuesday at par with a coupon of 4.25% and an initial conversion premium of 30%.

Pricing came at the cheap end of talk for a coupon of 3.75% to 4.25% and at the midpoint of talk for an initial conversion premium of 27.5% to 32.5%, according to a market source.

The notes were down on an outright basis but made large gains on swap, sources said.

The notes were marked at 100 bid, 100.5 offered out of the gate but quickly dropped to 99.5 bid, sources said.

However, they gained more than 1 point on swap.

Herbalife’s stock was trading at $12.58, a decrease of 3.52%, shortly before 11 a.m. ET.

The deal came as a refinancing with the company using $274.9 million to repurchase $287.5 million in principal of the company’s 2.625% convertible notes due 2024.

The 2.625% notes appeared to be repurchased at 95, a source said.

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