Aspen Aerogels convertibles offering pulled; Cytokinetics on tap; Upstart retests lows

By Abigail W. Adams

Portland, Me., June 30 – Convertibles primary market activity took a hit amid volatility in equity markets with one of the two bond offerings in store for the final week of June pulled.

While Aspen Aerogels, Inc. canceled its planned concurrent offerings of $150 million five-year green convertible notes and $225 million of common stock, Cytokinetics Inc.’s $450 million of five-year convertible notes was still slated to price after the market close.

Aspen’s convertible notes played to solid demand, but the company could not withstand the damage the offering inflicted on the company’s stock, sources said.

The pulled offering was a hit to the hedge players expecting to be involved.

Cytokinetics’ convertible notes offering looked cheap based on underwriters’ assumptions.

While a sizable offering, the refinancing deal was mostly already spoken for by the largest holders of its outstanding notes.

Meanwhile, the secondary space was quiet as volatility continued to rock equities.

Indexes suffered large losses shortly after the opening bell, almost erased their losses in intraday activity, but dropped again into the close.

The Dow Jones industrial average closed down 254 points, or 0.82%, the S&P 500 index closed down 0.87%, the Nasdaq Composite index closed down 1.33% and the Russell 2000 index closed down 0.93%.

There was $41 million in reported convertibles trading volume a little more than one hour into the session and $332 million on the tape less than one hour before the close.

Upstart Holdings Inc.’s 0.25% convertible notes due 2026 were active with the notes retesting their lowest outright level since pricing.

As accounts prepare to close their books on a brutal quarter, certain holders of Canopy Growth Corp.’s 4.25% convertible senior notes due 2023 received a last-minute windfall after the cannabis company privately negotiated an exchange.

Cytokinetics eyed

Cytokinetics plans to price $450 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 3% to 3.5% and an initial conversion premium of 30% to 35%.

The deal was heard to be in the market with assumptions of 575 basis points over Libor and a 45% vol., a source said.

Using those assumptions, the deal looked 5.25 points cheap at the midpoint of talk.

Proceeds will be used to repurchase a portion of the company’s 4% convertible notes due 2026 in privately negotiated transactions.

The deal was more financial engineering, a source said.

The 4% convertible notes are deep-in-the-money and have been trading at 475.

Taking out the two largest holders of the 4% notes accounts for the lion’s share of the new deal on deck, a source said.

With the 4% convertible notes at their current level, the company was most likely flushing them out to clean up their balance sheets, a source said.

Aspen pulled

Aspen pulled its concurrent offerings of $150 million five-year green convertible notes and $225 million of common stock on Thursday after stock got annihilated from the proposed capital raise.

The convertible notes offering played to heavy demand and with several hedge accounts interested given the cheapness of the deal.

The notes were talked with a coupon of 6% to 6.5% and an initial conversion premium of 22.5% to 27.5%.

Using underwriters’ assumptions of 1,250 bps over Libor and a 45% vol., sources pegged the deal 7 to 8 points cheap at the midpoint of talk.

Hedge accounts that had positioned to play the deal were hurt with the pulled offering.

Aspen’s stock sank 42% on Wednesday on the heels of the new offering.

However, it climbed 20% in intraday activity on Thursday, which was partially due to hedge accounts short covering.

Upstart’s new low

Upstart’s 0.25% convertible notes due 2026 hit a new outright low in active trading.

The 0.25% convertible notes, which have been trading at distressed levels, fell another 3 points.

The notes were trading just shy of 56 in the late afternoon with the yield broaching 15%, a source said.

There was $11 million in reported volume.

While not equity sensitive, Upstart’s stock closed Thursday at $31.62, a decrease of 1.77%.

The notes, which priced at par in August 2021, traded north of 150 in October before the lending platform’s stock collapsed alongside other growth stocks.

The convertible notes were trading on a 56-handle in late May before they were lifted by a market rally.

Canopy’s exchange

As accounts close the books on a brutal first half of the year, certain holders of Canopy Growth’s 4.25% convertible senior notes due 2023 received a windfall from a privately negotiated exchange.

The Smiths Falls, Ont.-based cannabis company announced post-close on Wednesday that it was repurchasing C$255.4 million in principal of the notes in exchange for common shares of the company and about C$3 million for accrued interest.

The shares payable will be the purchase price divided by the volume-weighted average share price over 10 consecutive trading days beginning on June 30 with a minimum price of $2.50 and a maximum price of $3.50.

The exchange price was a large premium over the notes’ market value.

“People made a ton of money off of it,” a source said.

Mentioned in this article:

Aspen Aerogels, Inc. NYSE: ASPN

Canopy Growth Corp. Nasdaq: CGC

Cytokinetics Inc. Nasdaq: CYTK

Upstart Holdings Inc. Nasdaq: UPST

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