NIO’s new convertible notes hit the aftermarket, expand on debut; Seagate gains

By Abigail W. Adams

Portland, Me., Sept. 20 – The convertibles primary market was quiet on Wednesday with a narrow window of opportunity for additional issuance before the week draws to a close.

While expectations for new deal activity on Thursday were low, the Fed’s messaging about any additional rate hikes and higher for longer may continue to drive issuers to the market, sources said.

Meanwhile, all eyes were on NIO Inc. as its $1 billion two-tranche offering of six- and seven-year convertible notes made its aftermarket debut.

The new paper dominated the tape with both tranches strong on an outright and dollar-neutral basis.

Outside of NIO, the secondary space was quiet as the market awaited and then responded to the Federal Open Market Committee’s announcement and chair Jerome Powell’s press conference.

Treasury yields were mixed and equity indexes in the red after the Fed held rates steady but signaled one more rate hike may be in order before the close of 2023.

The Dow Jones industrial average closed Wednesday down 77 points, or 0.22%, the S&P 500 index closed down 0.94%, the Nasdaq Composite index closed down 1.53% and the Russell 2000 index closed down 0.84%.

There was $721 million on the tape about one hour before the market close with NIO accounting for nearly one third of the activity.

Seagate HDD Cayman’s 3.5% exchangeable notes due 2028 continued to improve in active trade.

NIO in focus

NIO priced a $1 billion two-tranche offering of six- and seven-year convertible notes after the market close on Tuesday.

The deal consisted of a $500 million tranche of six-year convertible notes, which priced at par with a coupon of 3.875% and an initial conversion premium of 30%.

Pricing came toward the cheap end of talk for a coupon of 3.5% to 4% and at the midpoint of talk for an initial conversion premium of 27.5% to 32.5%.

The deal also included a $500 million tranche of seven-year convertible notes, which priced at par with a coupon of 4.625% and an initial conversion premium of 30%.

Pricing came toward the cheap end of talk for a coupon of 4.25% to 4.75% and at the midpoint of talk for an initial conversion premium of 27.5% to 32.5%.

The offering was among the cheapest to clear the primary market recently with the tranches modeled 7 to 9 points cheap at the midpoint of talk, sources said.

While the offering “had a lot of hair on it,” a source said, it played to strong demand especially from hedge funds.

Allocations to hedge funds were about 75% of the offering, a source said.

The notes were putting in a strong performance in the aftermarket.

The 3.875% convertible notes due 2029 traded up to 103.5 early in the session.

The notes changed hands at 102.625 versus a stock price of $8.84 in the late afternoon, according to a market source.

There was $150 million in reported volume.

The 4.625% convertible notes due 2030 rose to 104 early in the session and were trading at 104.375 versus a stock price of $8.81 in the late afternoon.

There was $137 million in reported volume.

Both tranches saw a 1 point to 1.5 point expansion, a source said.

NIO’s American Depositary Shares traded to a low of $8.67 and a high of $9.06 before closing at $8.82, an increase of 3.16%.

The deal came as a refinancing with NIO repurchasing $256 million in principal of the 0% convertible notes due 2026 and $244 million in principal of the 0.5% convertible notes due 2027 in privately negotiated transactions.

The 0% convertible notes due 2026 appeared to be bought back at 97.75 and the 0.5% convertible notes appeared to be bought back at 90.75, according to a market source.

Seagate improves

Seagate’s 3.5% exchangeable notes due 2028 continued to improve on a strong day for the company’s stock.

The 3.5% notes gained 1 point outright with stock up about 1%.

The notes were seen at 103 versus a stock price of $66.22 in the late afternoon, according to a market source.

There was $20 million in reported volume.

Seagate’s stock traded to a low of $65.28 and a high of $66.44 before closing at $65.63, up 1.17%.

Mentioned in this article:

NIO Inc. NYSE: NIO

Seagate Technology Holdings plc Nasdaq: STX

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