Vertex convertible notes in demand, jump on debut; Uniti paper gains on merger talk

By Abigail W. Adams

Portland, Me., April 24 – The convertibles secondary space saw an uptick of activity on Wednesday as the first new paper in three weeks made its aftermarket debut.

In a heavily oversubscribed offering, Vertex Inc. priced an upsized $300 million of five-year convertible notes after the market close on Tuesday.

The new paper hit the secondary space on a mixed day for equities with indexes taking a breather from the strong gains of the previous two sessions.

The Dow Jones industrial average closed Wednesday down 43 points, or 0.11%, the S&P 500 index closed up 0.02%, the Nasdaq Composite index closed up 0.10% and the Russell 2000 index closed down 0.36%.

Vertex’s new convertible notes were the driving force of volume in the secondary space with the notes jumping on an outright and dollar-neutral basis.

The market was largely quiet outside of the new paper.

However, earnings and topical news continued to spark large price movements in outstanding issues.

Uniti Group Inc.’s 7.5% convertible notes due 2027, an off-the-run issue that rarely trades in volume, made large gains in active trade on Wednesday on reports that Uniti and Windstream were closing in on a merger agreement.

Vertex in demand

Vertex priced an upsized $300 million of five-year convertible notes after the market close on Tuesday at par with a coupon of 0.75% and an initial conversion premium of 30%.

Pricing came at the rich end of talk for a coupon of 0.75% to 1.25% and the midpoint of talk for an initial conversion premium of 27.5% to 32.5%.

The greenshoe was also upsized to $45 million.

The initial size of the offering was $250 million with a greenshoe of $37.5 million.

The offering was heavily oversubscribed with the deal modeling cheap, the company a new addition to the market, and the market hungry for new paper.

The demand for the notes followed them into the secondary space where they made large outright and dollar-neutral gains.

The notes were trading at 102.25 versus a stock price of $29.21 early in the session, according to a market source.

They continued their upward movement and were wrapped around 105 in the late afternoon.

The notes expanded 2.5 points dollar-neutral.

“It was a good deal that made everyone, including the issuer, happy,” a source said.

The notes dominated activity in the secondary space with $150 million in reported volume.

Vertex’s stock traded to a low of $27.96 and a high of $29.44 before closing at $28.91, up 3.47%.

While active on debut, sources expect the notes to soon be tucked away.

Uniti active

Uniti’s 7.5% convertible notes due 2027, an off-the-run issue that rarely trades in volume, made large gains in active trade on Wednesday on news of Uniti’s imminent combination with Windstream.

The convertibles were trading at 107.5 versus a stock price of $5.92 early in the session.

The notes expanded 2 points dollar-neutral, a source said.

There was $7 million on the tape.

Uniti’s stock traded to a low of $5.66 and a high of $6.01 before closing at $5.71, a decrease of 0.52%.

The notes were active following reports that Uniti and Windstream were on the cusp of announcing a $15 billion merger agreement.

The notes are expected to remain outstanding in what was heard to be an all-stock transaction but the credit profile of the company is expected to improve.

However, both names have some hair on them, a source said, with Uniti and Windstream sharing a sordid history.

Uniti formed through a spinoff from Windstream in 2015, which included a leaseback arrangement for fiber optic cables.

Creditors of Windstream challenged the validity of the leaseback arrangement and their victory in court resulted in Windstream filing for bankruptcy in February 2019.

Windstream and Uniti were almost opponents in a court battle over the leaseback agreement but were able to settle their dispute in March 2020.

Mentioned in this article:

Uniti Group Inc. Nasdaq: UNIT

Vertex Inc. Nasdaq: VERX

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