WisdomTree builds high-coupon, high-premium CB
WisdomTree raised an upsized US$475m late Monday from the sale of a convertible bond to fund an acquisition while also taking out the bulk of an existing CB and simultaneously buying back stock.
Sole bookrunner Oppenheimer priced the five-year CB on an overnight basis at a 4.625% coupon and a 45% conversion premium, the aggressive ends of 4.625%–5.125% and 40%–45% terms marketed overnight. The bank increased the base deal size from US$400m to US$415m at pricing and immediately exercised a US$60m greenshoe option.
The strong outcome reflected a book of demand that was six times covered.
The asset manager’s shares rose 2.8% post-pricing Tuesday to US$13.58.
To provide built-in stock borrow for arbs participating in the deal, WisdomTree bought back US$90m worth of stock (6.8m shares). Separately, it bought back US$24m principal of a 5.75% CB that matures in 2028 and is convertible at US$9.54 for US$37m in cash, taking out holders at 154 cents on the dollar.
WisdomTree is no stranger to the convert market, having most recently issued a US$345m 3.25% CB due 2029 in August last year that was also used to buy back some of the 2028 CB.
A high coupon, high premium CB has been the company’s preferred funding vehicle.
WisdomTree used the bulk of the money to fund the US$275m upfront cash cost to acquire Ceres Partners, a private equity firm focused on farmland investments. It could owe another US$225m earn out based on growth.
“We, like many, had to first work through the “what?” reaction, but with more information are fully on board with the logic,” wrote George Sutton, an equity analyst at Craig-Hallum, in a note to clients August 4. “Farmland represents a very large, uncorrelated asset to the equities market that is attractive to yield focused investors also looking for long-term asset appreciation.”
Ceres is the fifth-largest private owner of farmland, behind the likes of the Mormon Church, Bill Gates and Berkshire Hathaway. Farmland Partners is another alternative in the public equity markets, noted Sutton.
WisdomTree has US$129.1bn of assets under management focused on a suite of exchange-traded products.