Nikola on deck; Merit Medical, Sphere Entertainment, Evolent in focus, expand on debut

By Abigail W. Adams

Portland, Me., Dec. 6 – The convertibles primary market remained active on Wednesday with one more deal on deck after the primary priced $1.025 billion in new supply the previous session.

Nikola Corp. plans to price $200 million of three-year green convertible notes after the market close on Thursday with price talk for a coupon of 7.75% to 8.25% and an initial conversion premium of 20% to 25%, according to a market source.

BTIG, LLC (lead left), Robert W. Baird & Co. Inc., Bryan, Garnier & Co. Ltd. and Wolfe | Nomura Alliance are bookrunners for the Securities and Exchange Commission-registered offering, which carries a greenshoe of $30 million.

The deal will be an interesting one with Nikola no stranger to scandal and bankruptcy speculation about the company high.

The latest offering comes after Merit Medical Systems Inc. priced an upsized $650 million of five-year convertible notes, Sphere Entertainment Co. sold $225 million of five-year convertible notes, and Evolent Health Inc. sold $350 million of six-year convertible notes after the market close on Tuesday.

The new paper played to strong demand during book building and made strong outright and dollar-neutral gains on debut.

While equity markets were off to a strong start following the latest ADP jobs report, which reflected a weakening of the U.S. labor market, indexes gave back their early gains and were in the red by the market close.

The Dow Jones industrial average closed Wednesday down 70 points, or 0.19%, the S&P 500 index closed down 0.39%, the Nasdaq Composite index closed down 0.58% and the Russell 2000 index closed down 0.21%.

Trading volume was heavy with $231 million in reported volume about one hour into the session and $817 million on the tape about one hour before the market close.

While new paper was in focus and accounted for almost one-third of the total volume on the tape, the secondary space was strong across the board with buyers putting money to work.

“Have offer, will trade,” a source said.

Merit Medical in demand

Merit Medical priced an upsized $650 million of five-year convertible notes after the market close on Tuesday.

The deal played to heavy demand with pricing coming 50 basis points tighter than the tight end of initial talk.

The convertible notes priced at par with a coupon of 3% and an initial conversion premium of 32.5%.

Pricing came at the rich end of tightened talk for a coupon of 3% to 3.25% and in line with tightened talk for an initial conversion premium of 32.5%.

Initial price talk was for a coupon of 3.5% to 4% and an initial conversion premium of 27.5% to 32.5%.

The greenshoe was also upsized to $97.5 million.

The initial price talk “was a little silly,” a source said, with the tightened talk not a surprise.

The initial size of the offering was $550 million with a greenshoe of $82.5 million.

Despite the upsize and tightened talk, the new paper soared on their aftermarket debut.

The convertibles traded up to 103 on an outright basis with stock up about 2% early in the session.

They were trading at 104.625 versus a stock price of $68.37 in the late afternoon.

The notes expanded 2.75 points dollar-neutral, a source said.

There was $150 million in reported volume.

Merit Medical’s stock traded to a low of $65.46 and a high of $68.60 before closing at $68.59, up 4.67%.

Sphere Entertainment expands

Sphere Entertainment priced $225 million of five-year convertible notes after the market close on Tuesday at par with a coupon of 3.5% and an initial conversion premium of 25%.

Pricing came at the midpoint of talk for a coupon of 3.25% to 3.75% and the cheap end of talk for an initial conversion premium to 25% to 30%.

The deal modeled cheap and played to strong demand.

However, the money-losing small cap company’s credit profile is one that investors have shunned recently, albeit until the phenomenal post-CPI rally of mid-November.

The pricing terms the company was able to access were a surprise to some sources.

However, the new paper notched strong outright and dollar-neutral gains on debut.

The 3.5% notes were trading around 102.5 early in the session and continued to rise as the company’s stock soared.

The notes were trading at 106.125 versus a stock price of $30.70 in the late afternoon.

They expanded about 1.25 points dollar-neutral, a source said.

There was $88 million in reported volume.

Sphere Entertainment’s stock traded to a low of $28.36 and a high of $31.31 before closing at $31.25, an increase of 10%.

Evolent oversubscribed

Evolent Health priced $350 million of six-year convertible notes after the market close on Tuesday at par with a coupon of 3.5% and an initial conversion premium of 42.5%.

Pricing came at the midpoint of talk for a coupon of 3.25% to 3.75% and at the rich end of talk for an initial conversion premium of 37.5% to 42.5%, according to a market source.

The deal played to strong demand with the offering partially wall-crossed and mostly covered at the time of launch.

The deal was 4x to 5x oversubscribed with allocations tight, a source said.

Outright accounts took down the majority of the issue.

The new paper made strong gains on an outright and dollar-neutral basis on debut.

The notes were trading at 103.875 versus a stock price of $27.50 early in the session.

They were changing hands at 105.375 versus a stock price of $28.15 in the late afternoon.

The notes expanded 2 to 2.5 points dollar-neutral, a source said.

Evolent Health’s stock traded to a low of $27.13 and a high of $28.78 before closing at $28.31, an increase of 6.15%.

Mentioned in this article:

Evolent Health Inc. NYSE: EVH

Merit Medical Systems Inc. Nasdaq: MMSI

Nikola Corp. Nasdaq: NKLA

Sphere Entertainment Co. NYSE: SPHR

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