Nabors convertible notes skyrocket on debut; WisdomTree strong; Lyft notes come in

By Abigail W. Adams

Portland, Me., Feb. 10 – It was a backloaded week for the convertibles primary market with two overnight offerings pricing shortly after launching post-close on Thursday.

WisdomTree Inc. priced $130 million of long five-year convertible notes and Nabors Industries, Inc. sold an upsized $225 million of long six-year exchangeable notes after the market close on Thursday.

Both issues came as refinancings with Nabors using proceeds to fund the redemption of its straight debt – something market players expect to see as a coming trend in primary market activity.

The new paper played to strong demand during bookbuilding with both issues putting in strong aftermarket performances.

The surge in energy markets on Friday helped catapult the new paper from Nabors, which saw outsized dollar-neutral and outright gains on debut.

While the new paper was putting in a strong performance, the broader convertibles secondary space felt heavy, a source said.

Equities were mixed on Friday with some indexes fighting off early losses to close in positive territory. The Dow Jones industrial average closed up 169 points, or 0.50%, the S&P 500 index closed up 0.22%, the Nasdaq Composite index closed down 0.61% and the Russell 2000 index closed up 0.26%.

There was $560 million on the tape about one hour before the market close with Nabors and WisdomTree accounting for almost ¼ of the total reported volume.

However, earnings-related volatility continued to jumpstart activity in outstanding issues with Lyft Inc.’s 1.5% convertible notes due 2025 seeing heavy volume on Friday.

The notes fell on an outright and dollar-neutral basis as stock cratered more than 30% after an earnings disappointment.

WisdomTree oversubscribed

WisdomTree priced $130 million of long five-year convertible notes after the market close on Thursday at par with a coupon of 5.75% and an initial conversion premium of 60%.

Pricing came toward the rich end of talk for a coupon of 5.625% to 6% and in line with talk for a fixed initial conversion premium of 60%, according to a market source.

The offering was wall-crossed and more than 4x oversubscribed, a source said.

The 5.75% notes were trading up on an outright basis with stock largely flat during Friday’s session.

The notes were steadily trading in the 100.5 to 101 context throughout the session, sources said.

The notes expanded about 0.75 point dollar-neutral.

There was $53 million in reported volume.

WisdomTree’s stock held steady on Friday, trading to a low of $5.92 and a high of $6.04 before closing the day at $6.02, an increase of 1.01%.

It was surprising that stock held up as well as it did with overnight offerings usually destroying stock, a source said.

However, the exchange aspect of the deal, which created new net buyers of stock as holders on swap took out the old bonds, and the balance of allocations between outright and hedge accounts, helped to support the stock price.

“The balance was just about right,” a source said. “It was a stock-neutral transaction.”

The deal came as a refinancing with $125.1 million of net proceeds used to repurchase $115 million in principal of its 4.25% convertible notes due June 15, 2023.

The 4.25% convertible notes appeared to be bought back at 108.101, a source said.

Nabors outperforms

Nabors priced an upsized $225 million of long six-year exchangeable notes after the market close on Thursday at par at the midpoint of talk with a coupon of 1.75% and an initial exchange premium of 22.5%.

Price talk was for a coupon of 1.5% to 2% and an initial exchange premium of 20% to 25%.

The deal was heard to be in the market with assumptions of a 475 basis points credit spread and a 50% vol. or a 500 bps credit spread and a 50% vol., sources said.

Using assumptions of a 475 bps credit spread and a 50% vol., the deal looked 7.75 points cheap at the midpoint of talk, a source said.

The cheapness of the deal was to compensate for the damage the overnight offering was expected to do to stock.

The 50% vol. was an anomaly with vol. assumptions usually capped at 45%, sources said.

“But it’s certainly justified,” a source said.

The new 1.75% notes skyrocketed on an outright and dollar-neutral basis.

The notes traded up to a 103-handle with stock off 8% shortly after the opening bell and continued to climb as the session progressed.

They notes were wrapped around 105 shortly before 11 a.m. ET and were changing hands at 108.25 versus a stock price of $171.22 in the late afternoon.

The notes expanded 5.5 to 6 points dollar-neutral, a source said.

“They’ve definitely done well,” a source said.

After opening Friday down more than 8%, Nabors’ stock nearly eliminated its losses on the day.

Stock traded to a low of $157 and a high of $174.09 before closing the day at $173.02, an increase of 0.27%.

The recovery in Nabors’ stock was a surprise; however, Friday was a strong day for the energy sector after Russia announced it would reduce oil output by 5% in response to sanctions.

Lyft’s earnings

Lyft’s 1.5% convertible notes due 2025 were down on an outright and dollar-neutral basis on Friday as stock cratered after an earnings disappointment.

The 1.5% notes fell 1 point outright.

They were changing hands at 88.5 versus a stock price of $10.35 in the late afternoon.

The notes contracted about 1 point dollar-neutral.

The high-premium notes trade on a light delta with some playing the notes at 25% and others on a lighter hedge, a source said.

The notes are more credit sensitive and were trading with a yield of about 7%.

Lyft’s stock traded to a low of $10.23 and a high of $11.22 before closing at $10.31, down 36.44%.

While Lyft reported record revenue of $1.17 billion versus the $1.16 billion expected, it missed on the bottom line by more than 700%.

Lyft reported losses per share of 75 cents versus analyst expectations for earnings per share of 12 cents.

Forward guidance also fell well short of expectations with the company projecting EBTDA of $5 million to $15 million.

Mentioned in this article:

Lyft Inc. Nasdaq: LYFT

Nabors Industries, Inc. NYSE: NBR

WisdomTree Inc. NYSE: WT

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