For the first time since March 4, the convertible market saw new issuance this Wednesday (April 1), with the pricing of two deals. Both were part of larger capital raises, and both priced with model values in the 104 – 105 range in addition to credit spread assumptions meaningfully wider than before the Covid-19 market dislocations.
Carnival Corporation:
- $1.75 billion 3-year convertible notes
- Alongside $500mm of common stock and $4 billion of 3-year senior secured notes (11.9% yield), marketed over a 2-day period after a wall-cross on the high-yield offering
- Priced at 5.75% coupon / 25% conversion premium to the offering price of the concurrent common stock
- Using the L + 1400 credit spread / 40% volatility marketing assumptions, the model value of the convertibles was approximately 104.6
- Finished the first day of trading close to par, with the stock price nearly unchanged from the offer price
Nevro Corporation:
- $165 million 5-year convertible notes
- Alongside $136.5 million of common stock, both executed on an overnight basis (after a wall-cross process)
- Priced at 2.75% coupon / 25% conversion premium to the common offer price
- Using the L + 1000 credit spread / 40% volatility marketing assumptions, the model value of the convertible was approximately 104.3
- Finished the first day of trading at 112.5, with the stock up 13%. This represents a gain of ~5 points on a stock-adjusted (hedged) basis
- Included call spread to raise effective conversion premium to 75%
These deals present two important, but varied, data points for prospective convertible issuers. Please reach out to Matthews South for a data-driven, independent assessment of what terms are achievable for your transaction.