Morning Commentary: Merit Medical, Sphere Entertainment, Evolent price, expand on debut

By Abigail W. Adams

Portland, Me., Dec. 6 – The convertibles secondary space saw an active start to the day with $1.025 billion in new supply making its aftermarket debut.

Merit Medical Systems Inc. priced an upsized $650 million of five-year convertible notes, Sphere Entertainment Co. priced $225 million of five-year convertible notes, and Evolent Health Inc. sold $350 million of six-year convertible notes after the market close on Tuesday.

The new paper played to strong demand during book building.

The notes hit the secondary space on a strong day for the market with equity indexes in the green on the heels of the latest ADP jobs report, which reflect a weakening of the U.S. labor market.

The Dow Jones industrial average was up 64 points, or 0.17%, the S&P 500 index was up 0.17%, the Nasdaq Composite index was up 0.22% and the Russell 2000 index was up 1.49% shortly before 11 a.m. ET.

Trading volume was heavy with $231 million in reported volume about one hour into the session.

The new paper was in focus and making strong outright and dollar-neutral gains on debut.

Merit Medical in demand

Merit Medical priced an upsized $650 million of five-year convertible notes after the market close on Tuesday.

The deal played to heavy demand with pricing coming 50 basis points tighter than the tight end of initial talk.

The convertible notes priced at par with a coupon of 3% and an initial conversion premium of 32.5%.

Pricing came at the rich end of tightened talk for a coupon of 3% to 3.25% and in line with tightened talk for an initial conversion premium of 32.5%.

Initial price talk was for a coupon of 3.5% to 4% and an initial conversion premium of 27.5% to 32.5%.

The greenshoe was also upsized to $97.5 million.

The initial price talk “was a little silly,” a source said, with the tightened talk not a surprise.

The initial size of the offering was $550 million with a greenshoe of $82.5 million.

Despite the upsize and tightened talk, the new paper soared on their aftermarket debut.

The convertibles traded up to 103 on an outright basis with stock up about 2%.

The notes expanded 1.25 points to 1.5 points on a dollar-neutral, or hedged, basis, a source said.

Merit Medical’s stock was trading at $66.91, an increase of 2.11%, in intraday trading.

Sphere Entertainment eyed

Sphere Entertainment priced $225 million of five-year convertible notes after the market close on Tuesday at par with a coupon of 3.5% and an initial conversion premium of 25%.

Pricing came at the midpoint of talk for a coupon of 3.25% to 3.75% and the cheap end of talk for an initial conversion premium to 25% to 30%.

The deal modeled cheap and played to strong demand.

However, the money-losing small cap company’s credit profile is one that investors have shunned recently, albeit until the phenomenal post-CPI rally of mid-November.

The pricing terms the company was able to access was a surprise to some sources.

However, the new paper notched strong outright and dollar-neutral gains on debut.

The 3.5% notes were trading around 102.5 early in the session.

They expanded about 1 point dollar-neutral.

Sphere Entertainment’s stock was trading at $30.45, an increase of 7.15%, shortly before 11 a.m. ET.

Evolent Health prices

Evolent Health priced $350 million of six-year convertible notes after the market close on Tuesday at par with a coupon of 3.5% and an initial conversion premium of 42.5%.

Pricing came at the midpoint of talk for a coupon of 3.25% to 3.75% and at the rich end of talk for an initial conversion premium of 37.5% to 42.5%, according to a market source.

The deal played to strong demand with the offering partially wall-crossed and mostly covered at the time of launch.

The new paper made strong gains on an outright and dollar-neutral basis on debut.

The notes were trading at 103.875 versus a stock price of $27.50 early in the session.

They expanded 2 points dollar-neutral, a source said.

Evolent Health’s stock was trading at $27.23, an increase of 2.19%, shortly before 11:30 a.m. ET.

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