Rocket Lab convertible notes rocket on debut; Wolfspeed under pressure

By Abigail W. Adams

Portland, Me., Feb. 2 – The convertibles primary market capped a relatively active week with two deals pricing.

Rocket Lab USA Inc. priced an upsized $300 million of five-year convertible notes and Barclays Bank plc priced five-year cash-settled equity-linked notes tied to Microsoft Corp. after the market close on Thursday.

While the primary market has operated at a steady pace throughout January, issuance has paled in comparison to the stampede seen in high-yield and investment-grade markets.

However, the primary is active behind the scenes, sources say, with the pace of issuance expected to accelerate in coming weeks.

The new paper hit the secondary space as the latest U.S. unemployment figures rattled markets.

Equity indexes were mixed with tech earnings lifting the Nasdaq while Treasuries saw heavy selling on the heels of the U.S. nonfarm payrolls report, which reflected a surge in hiring and wage growth.

The strong numbers were a further blow to markets hopeful for sooner-rather-than-later rate cuts.

The 10-year Treasury yield climbed 14.4 basis points to again close the day above the 4% threshold at 4.023%.

The Dow Jones industrial average closed Friday up 135 points, or 0.35%, the S&P 500 index closed up 1.07%, the Nasdaq Composite index closed up 1.74% and the Russell 2000 index closed down 0.54%.

There was $537 million in reported volume in the late afternoon with Rocket Lab dominating the tape.

The new notes saw a strong aftermarket debut and traded up on an outright and dollar-neutral basis.

While Rocket Lab’s new paper was in focus, earnings and topical news also sparked large price movements in the space.

Wolfspeed Inc.’s convertible notes fell alongside stock on the heels of earnings.

Rocket Lab rockets higher

Rocket Lab priced an upsized $300 million of five-year convertible notes after the market close on Thursday at par at the cheap end of talk with a coupon of 4.25% and an initial conversion premium of 27.5%.

Price talk was for a coupon of 3.75% to 4.25% and an initial conversion premium of 27.5% to 32.5%.

The greenshoe was also upsized to $55 million.

The initial size of the offering was $275 million with a $41.25 million greenshoe.

The offering played to strong demand from hedge accounts, a source said.

The new paper rocketed higher in the aftermarket, trading up on an outright and dollar-neutral basis on a red day for stock.

The notes were trading at 102.625 versus a stock price of $3.99 in the late afternoon.

They expanded 3 to 3.5 points dollar-neutral, sources said.

There was $162 million in reported volume in the late afternoon.

Rocket Lab’s stock traded to a low of $3.92 and a high of $4.02 before closing at $3.98, down 1.12%.

Wolfspeed under pressure

Wolfspeed’s convertible notes were under pressure as stock sank after the company reported earnings.

The longer-duration 1.875% convertible notes due 2029 sank 2 points outright.

They were trading at 52 versus a stock price of $26.09 in the late afternoon.

There was $6 million in reported volume.

The 1.75% convertible notes due 2026 were down 5.5 points outright.

They were trading at 89.25 versus a stock price of $25.83 in the late afternoon.

There was $5 million in reported volume.

While the notes trade on hedge, there is a wide range of deltas in play making the dollar-neutral move difficult to calculate.

Many accounts play the notes on a heavier hedge than the theoretical model, a source said.

On a heavier hedge, the notes were off about 0.5 point dollar-neutral.

Wolfspeed’s stock traded to a low of $25.43 and a high of $28.20 before closing at $26.51, down 5.73%.

Wolfspeed’s earnings came in better than anticipated with losses per share of 55 cents versus analyst expectations for losses per share of 63 cents.

Revenue was $208.4 million versus the $206.41 million expected.

While an earnings beat, the company’s high cash burn rate is a concern for investors, a source said.

Mentioned in this article:

Rocket Lab USA Inc. Nasdaq: RKLB

Wolfspeed Inc. NYSE: WOLF

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