Morning Commentary: Xometry convertibles look cheap, borrow tough; Wolfspeed jumps

By Abigail W. Adams

Portland, Me., Feb. 1 – New paper in the convertibles market was in focus on Tuesday after the turmoil in equities put primary market activity on hold for almost a month.

One new deal is set to price after the market close and another made its aftermarket debut.

Xometry Inc. plans to price $250 million of five-year convertible notes after the market close on Tuesday.

The deal looked cheap based on underwriters’ assumptions but the stock has a difficult borrow, sources said.

Meanwhile, new paper from Wolfspeed Inc. hit the secondary space.

The demand for the notes seen during bookbuilding followed them into the secondary space with the notes making large gains on an outright and dollar-neutral basis.

Xometry eyed

Xometry plans to price $250 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.5% to 1% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of 400 basis points over Libor and a 42% vol., a source said.

Assuming a regular borrow, the deal modeled 3.47 points cheap at the midpoint of talk.

However, the borrow on the stock was tough, sources said.

Assuming a 1% borrow, the deal looked about 2.5 points cheap at the midpoint of talk.

However, some sources pegged the borrow rate as high as 1.375%.

Wolfspeed in demand

Wolfspeed priced an upsized $650 million of six-year convertible notes after the market close on Monday at par at the rich end of talk with a coupon of 0.25% and an initial conversion premium of 35%.

Price talk was for a coupon of 0.25% to 0.75% and an initial conversion premium of 30% to 35%.

There is an upsized greenshoe of $100 million.

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

The demand for the notes seen during bookbuilding followed them into the secondary space with the notes skyrocketing on an outright and dollar-neutral basis.

The notes traded as high as 105.25 on an outright basis. However, the majority of trades were around 104.

The notes expanded about 4 points dollar-neutral, sources said.

Wolfspeed’s stock was changing hands at $95.04, an increase of 0.85%, shortly before 11 a.m. ET.

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