Xometry convertibles look cheap, borrow tough; Wolfspeed strong on debut; Digital Ocean up

By Abigail W. Adams

Portland, Me., Feb. 1 – New convertibles paper was in focus on Tuesday with one new deal set to price after the market close and another making its aftermarket debut.

Xometry Inc. plans to price $250 million of five-year convertible notes after the market close on Tuesday.

The deal looked cheap based on underwriters’ assumptions but the stock has a difficult borrow, sources said.

Meanwhile, new paper from Wolfspeed Inc. dominated activity in the secondary space with the notes skyrocketing on debut.

The primary market activity comes amid continued strength in equities after a brutal January that put several deals in the pipeline on hold.

While equities were choppy on Tuesday in anticipation of earnings, they again saw a strong close with the small cap index the outperformer.

The Dow Jones industrial average closed the day up 273 points, or 0.78%, the S&P 500 index closed up 0.69%, the Nasdaq Composite closed up 0.75%, and the Russell 2000 index closed up 1.10%.

The tone in the secondary space continued to improve with several battered issues that were trading in the 80s bid up, a source said.

DigitalOcean Inc.’s 0% convertible notes due 2026 were a case in point with the notes on the rise in active trading on Tuesday.

Xometry eyed

Xometry plans to price $250 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.5% to 1% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of 400 basis points over Libor and a 42% vol., a source said.

Assuming a regular borrow, the deal modeled 3.47 points cheap at the midpoint of talk.

However, the borrow on the stock was tough, sources said.

Assuming a 1% borrow, the deal looked about 2.5 points cheap at the midpoint of talk. However, some sources pegged the borrow rate as high as 1.375%.

The credit spread seemed tight with Xometry a small cap, unprofitable company, sources said.

However, the deal had no issues crossing the finish line with mostly hedge funds involved, a source said.

It is believed to be coming on the cheap end of talk.

Wolfspeed in demand

Wolfspeed priced an upsized $650 million of six-year convertible notes after the market close on Monday at par at the rich end of talk with a coupon of 0.25% and an initial conversion premium of 35%.

Price talk was for a coupon of 0.25% to 0.75% and an initial conversion premium of 30% to 35%.

There is an upsized greenshoe of $100 million.

The initial size of the offering was $500 million with a greenshoe of $75 million.

The demand seen during bookbuilding followed the notes into the secondary space where they skyrocketed on an outright and dollar-neutral basis.

The notes traded as high as 105.25 on an outright basis out of the gate.

However, the majority of trades were on a 104-handle. They were changing hands at 104.75 in the late afternoon.

The notes expanded about 4 points dollar-neutral at the market open, sources said.

However, they gave back some of their dollar-neutral gains as the session progressed. They were seen up 3.5 points on swap in the late afternoon.

Wolfspeed’s stock traded to a high of $98 and a low of $93.21 before closing the day at $97.45, an increase of 3.41%.

Wolfspeed, formerly known as Cree Inc., is a well-known name in the convertibles universe.

The company currently has $575 million outstanding in 1.75% convertible notes due 2026.

The 1.75% notes currently trade at double par.

However, proceeds from the new offering were not earmarked to take out the 1.75% notes.

DigitalOcean improves

DigitalOcean’s 0% convertible notes due 2026 were on the rise in active trading on Tuesday.

The notes gained about 1 point outright to close the day at 82.

DigitalOcean’s stock traded to a low of $56.34 and a high of $59.64 before closing at $59.43, an increase of 3.99%.

The notes were among several badly battered notes that have been on the rise since an upswing in equities.

Holders who bought on the low were selling to bargain hunters disappointed by the tight coupon and premium range of the new issues to come forward over the past week, a source said.

Mentioned in this article:

DigitalOcean Inc. NYSE: DOCN

Wolfspeed Inc. NYSE: WOLF

Xometry Inc. Nasdaq: XMTR

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.