Morning Commentary: Cutera offers convertible notes; Snap in focus as stock craters

By Abigail W. Adams

Portland, Me., May 24 – While volatility remained high in equity markets with indexes launching Tuesday deep in the red, the convertibles primary market again reared its head with one new offering on deck.

Cutera Inc. plans to price $200 million of six-year convertible notes after the market close on Tuesday with price talk for a coupon of 1.75% to 2.25% and an initial conversion premium of 27.5% to 32.5%.

The deal was being marketed with assumptions of 600 basis points over Libor and a 45% vol., according to a market source.

Using those assumptions, the deal looked about 2.85 points cheap at the midpoint of talk, a source said.

While the issue was small, the pricing was becoming increasingly attractive, a source said.

While Cutera’s stock was still trading rich, according to some sources, the company was seen as a solid credit.

The primary market was “dipping its toe in” with a serial convertible issuer, a source said.

Proceeds will be used, in part, to exchange $69.1 million in principal of Cutera’s 2.25% convertible notes due 2026 for cash and shares.

The borrow on the stock may be tough, but with the company retiring nearly half of the $138.25 million outstanding of its 2.25% convertible notes, the borrow may improve, a source said.

The new deal launched as heavy selling returned to equities with the Dow Jones industrial average down 502 points, or 1.56%, the S&P 500 index down 2.43%, the Nasdaq Composite index down 3.69% and the Russell 2000 index down 3% shortly before 11 a.m. ET.

Snap Inc. was the name of the day with the social media company’s warning about the impact of macroeconomic conditions on future earnings dragging down broader markets.

Snap’s convertible notes sank to new outright lows as the company’s stock fell by more than 40%.

The 0.125% convertible notes due 2028 sank more than 10 points outright with the notes wrapped around 70 early in the session.

The 0% convertible notes due 2027 were down 5 points outright with the notes trading at 71.25.

Snap’s stock was changing hands at $13.36, a decrease of 40.72%, shortly before 11 a.m. ET.

Stock plunged after the company lowered the guidance that was issued just one month earlier due a to macroeconomic environment that has “deteriorated further and faster than anticipated,” the company said in a press release.

The company announced that revenue and adjusted EBITDA for the second quarter will be below the low end of its previously announced range.

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