Morning Commentary: DexCom convertibles on deck; CMS, FirstEnergy strong on debut

By Abigail W. Adams

Portland, Me., May 2 – The convertibles primary market continued to churn out chunky offerings on Tuesday with well-known issuer DexCom Inc. on deck.

DexCom plans to price $1 billion of five-year convertible notes after the market close on Tuesday.

However, the pricing was aggressive with the deal modeling out to fair value, sources said.

DexCom’s offering comes after the primary market cleared $2 billion in two upsized deals the previous session.

“We are out of blackout and humming,” a source said.

CMS Energy Corp. priced an upsized $700 million and FirstEnergy Corp. priced an upsized $1.3 billion of three-year convertible notes after the market close on Monday.

The new paper hit the secondary space on a red day for equities with heavy selling as the Federal Open Market Committee kicks off its two-day meeting with a 25 basis point rate increase expected on Wednesday.

The Dow Jones industrial average was down 544 points, or 1.6%, the S&P 500 index was down 1.65%, the Nasdaq Composite index was down 1.46% and the Russell 2000 index was down 2.8% shortly before 11 a.m. ET.

While equity markets were off to an ugly start, CMS’ and FirstEnergy’s convertible notes were strong on their debut.

DexCom eyed

DexCom plans to price $1 billion of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.25% to 0.5% and an initial conversion premium of 37.5% to 42.5%.

The deal was heard to be in the market with assumptions of a 200 bps over SOFR and a 42% vol.

Using those assumptions, the deal looked fair value to 0.07 point cheap at the midpoint of talk, sources said.

The pricing was aggressive and may need adjustment given the market tone on Tuesday.

However, DexCom is a strong credit and a well-known name in the convertibles universe.

Its outstanding issues have historically traded rich, a source said.

CMS gains

CMS Energy priced an upsized $700 million of five-year convertible notes (expected Baa2) after the market close on Monday at par at the cheap end of talk with a coupon of 3.375% and an initial conversion premium of 20%, according to a market source and a company news release.

Price talk was for a coupon of 2.875% to 3.375% and an initial conversion premium of 20% to 25%.

The initial size of the offering was $650 million. The greenshoe was not upsized.

The new paper was off to a strong start in the secondary space.

The new 3.375% notes were changing hands at 101.125 with stock off early in the session.

There were a decent amount of trades on swap with the notes expanding dollar-neutral, a source said.

CMS’ stock was seen at $61.15, a decrease of 0.79%, shortly before 11 a.m. ET.

FirstEnergy in focus

FirstEnergy sold an upsized $1.3 billion of three-year convertible notes after the market close on Monday at par at the cheap end of talk with a coupon of 4% and an initial conversion premium of 20%, according to a market source and a company news release.

Price talk was for a coupon of 3.5% to 4% and an initial conversion premium of 20% to 25%.

The greenshoe was also upsized to $200 million.

The initial size of the offering was $1 billion with a greenshoe of $150 million.

The new paper was trading in the 100.25 to 100.75 context with stock off early in the session.

The notes were performing well on hedge, a source said.

FirstEnergy’s stock was changing hands at $38.19, a decrease of 2.05%, shortly before 11 a.m. ET.

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