BofA Voya-linked notes down in gray market; Pure Storage trades down

By Abigail W. Adams

Portland, Me., April 6 – The most recent cash-settled equity-linked notes tied to Voya Financial Inc. stock hit the market on Friday but the new notes were not actively traded during the session, a market source said. They had been quoted below par in the gray market.

BofA Finance LLC priced $250 million in five-year cash-settled equity-linked notes tied to Voya after the market close on Thursday with a coupon of 0.25% and an initial threshold premium of 37.5%.

The notes were seen as cheaper than the cash-settled equity-linked notes tied to Voya issued by JPMorgan Chase Financial Co. LLC and Deutsche Bank AG, London Branch. However, demand for more paper is lacking, a market source said.

Pure Storage’s new 0.125% notes due 2023 traded down on their second day in the market as stock dropped more than 5% late in the session. However, the notes were still seen up about 1/8 point dollar-neutral, a market source said.

The notes were in high demand during the subscription process and expanded about 1½ points dollar-neutral on their market debut Thursday.

While trading activity surrounding the notes tempered, they were still the major volume mover of Friday’s session.

Voya

BofA’s 0.25% cash-settled equity-linked notes tied to Voya looked cheaper than JPMorgan’s 0.25% cash-settled equity linked notes or Deutsche’s 1% cash-settled equity linked notes.

However, there was little demand for the new notes, a market sources said.

Pricing of the new notes came at the cheap end of talk for a coupon of 0% to 0.25% and an initial conversion premium of 37.5% to 42.5%, according to a market source.

The initial threshold price will be determined after a five-day averaging period for Voya stock, which began Friday.

The 0.25% notes were seen at 99 5/8 bid, 99 7/8 offer prior to the market open but were not seen trading, a market source said. The notes have a low delta and should not be that sensitive to the stock price, the source said.

BofA is the third financial institution to price cash-settled equity-linked notes tied to Voya. Banks are monetizing the warrants that were distributed after ING Group’s divestment of the company, market sources said.

JPMorgan priced $350 million of five-year cash-settled equity-linked notes tied to Voya on Jan. 31 with a coupon of 0.25% and an initial conversion premium of 32.5%.

Deutsche Bank priced $300 million of cash-settled equity-linked notes tied to Voya on March 8 with a coupon of 1% and an initial conversion premium of 30%.

Both JPMorgan’s 0.25% notes and Deutsche’s 1% notes were down in scattered trades on Friday. JPMorgan’s 0.25% notes were dropped about 3 points outright and were seen trading at 96.5 in scattered activity.

Deutsche’s notes dropped about 1.5 points to trade at 99.5 on Friday.

While BofA’s 0.25% notes looked cheaper, sources questioned whether it was worth buying if another financial institution was going to attempt to monetize their Voya warrants through another deal.

“This is the third. Anyone who holds warrants could be doing the same,” a market source said. “How much of this paper can the market digest? You buy it, then another one comes out.”

Pure Storage trades down

Pure Storage’s new 0.125% notes due 2023 traded down their second day in the secondary market. However, the notes were still seen expanded dollar neutral.

After expanding 1½ points dollar-neutral on their market debut Thursday, the notes were expanded about 1/8 point dollar-neutral late in the afternoon on Friday.

The 0.125% notes were seen trading at 100.25 as Pure Storage stock tanked Friday afternoon. While trading activity surrounding the notes tempered on Friday, they were still the main volume movers of the convertibles space with $12.4 million bonds in play by late afternoon.

With the notes approaching par, more buyers were getting involved, a market source said. “The name hasn’t died out,” the source said.

Pure Storage stock closed Friday at $18.53, a decrease of 5.89%.

The deal from the Mountain View, Calif.-based flash data storage company was heavily oversubscribed during the subscription process and in hot demand on its first day in the market on Thursday.

Pure Storage priced an upsized $500 million in five-year convertible notes prior to the market open Thursday with a coupon of 0.125% and an initial conversion premium of 32.5%.

Pricing came at the midpoint of talk for a coupon of 0% to 0.25% and at the cheap end of talk for an initial conversion premium of 32.5% to 37.5%, according to a market source.

While some market sources saw the pricing as aggressive, underwriters put out the overnight deal with talk that would lead the notes to break at par in the market when trading began.

The deal cleared with a 0.125% coupon with multiple oversubscriptions, a market source said.

There has been high demand for many of the recent software deals that have priced with most deals heavily oversubscribed during the bookbuilding, the source said.

Mentioned in this article:

Pure Storage NYSE: PSTG

Voya Financial Inc. NYSE: VOYA

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