DexCom upsizes convertibles offering; CMS, FirstEnergy strong on debut; Chegg craters

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 an upsized $1.1 billion of five-year convertible notes after the market close on Tuesday.

The deal had no trouble getting done with the offering well oversubscribed.

However, several sources felt the pricing was aggressive.

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 of five-year convertible notes 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 closed Tuesday down 167 points, or 1.08%, the S&P 500 index closed down 1.16%, the Nasdaq Composite index closed down 1.08% and the Russell 2000 index closed 2.03% lower.

While it was a heavy day for the market, CMS’ and FirstEnergy’s convertible notes made strong dollar-neutral gains on their debut.

The new paper jumpstarted activity in the secondary space with $812 million on the tape about one hour before the market close.

While trading activity was dominated by the new paper, topical and earnings-related news spurred activity in outstanding issues.

Chegg Inc.’s convertible notes were among the largest losers of Tuesday’s session with the notes crumbling dollar-neutral as stock got cut in half following a ChatGPT inspired earnings warning.

DexCom upsizes

DexCom plans to price an upsized $1.1 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 with sources describing the deal as “expensive,” and “optically unattractive.”

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.

Despite the aggressive pricing, the deal played to strong demand with books well oversubscribed and the offering upsized to $1.1 billion from $1 billion.

Pricing was heard to be coming with a coupon of 0.375% and an initial conversion premium of 37.5%.

CMS strong

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%.

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 made strong outright and dollar-neutral gains on its aftermarket debut.

The new 3.375% notes were changing hands at 101.125 versus a stock price of $61.35 in the late afternoon.

They expanded 1.5 points dollar-neutral, a source said.

There was $174 million in reported volume.

CMS’ stock traded to a low of $60.78 and a high of $61.70 before closing at $61.49, off 0.24%.

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%.

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 also made strong dollar-neutral gains on debut.

The notes were trading in the 100.25 to 100.75 context with stock off early in the session.

They were seen just shy of 100.5 versus a stock price of $38.26 in the late afternoon.

The notes expanded 1 point to 1.25 points on hedge, a source said.

FirstEnergy’s stock traded to a low of $38.01 and a high of $38.98 before closing at $38.76, a decrease of 0.64%.

Chegg craters

Chegg’s convertible notes were the largest losers of Tuesday’s session with the notes cratering dollar-neutral as stock got cut in half following a ChatGPT-inspired earnings warning.

Chegg’s 0.125% convertible notes due 2025 fell 5 points outright.

They were trading at 84.5 versus a stock price of $8.91 in the late afternoon.

The notes contracted about 2.5 points dollar-neutral.

There was $16 million in reported volume.

Chegg’s 0% convertible notes due 2026 sank 8 points outright.

The notes were changing hands at 72.5 versus a stock price of $8.92 in the late afternoon.

On a dollar-neutral basis, the notes contracted 6 points, a source said.

There was $10 million in reported volume.

Chegg’s stock traded to a low of $8.72 and a high of $9.85 before closing at $9.08, a decrease of 48.42%.

Stock was sliced in half after Chegg reported earnings with the company beating on both the top and bottom lines.

The education technology company reported earnings per share of 27 cents versus analyst expectations for earnings of 26 cents.

Revenue was $187.6 million versus analyst expectations for revenue of $185.18 million.

However, Chegg declined to provide guidance and warned that ChatGPT was cutting into its new customer growth rate with the future of the new trend brought on by the advent of AI uncertain.

Mentioned in this article:

Chegg Inc. NYSE: CHGG

CMS Energy Corp. NYSE: CMS

DexCom Inc. Nasdaq: DXCM

FirstEnergy Corp. NYSE: FE

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