Oscar Health slightly upsizes convertible bond to US$355m
Oscar Health secured a slightly upsized US$355m on Monday from the sale of a five-year convertible bond to provide additional financial flexibility, a US$5m bump from the US$350m base deal size marketed.
Wells Fargo, Morgan Stanley, Bank of America and JP Morgan priced the new CB at a 2.25% coupon and 32.5% conversion premium, towards the aggressive ends of the 2.25%–2.75% and 30%–35% talk marketed overnight.
The healthcare insurer’s shares fell 4.3% post-pricing Tuesday to US$17.93, as arbs were forced to short stock on the open market.
Oscar viewed this as an opportunistic financing. To that end, it spent US$29.8m of the proceeds on capped call to offset dilution from the CB up to a share price of US$37.46, double the reference price and compared to the US$24.82 price CB investors are eligible to convert.
That is a small amount of money for such a high strike price on the capped call.
The economics of both the CB and capped call saw the banks market a 55% implied vol, paired with a SOFR+500bp spread.
ICR Capital was independent adviser on the financing.
As part of and contingent upon completing the CB financing, Oscar terminated a US$115m revolving credit facility that is undrawn.
Oscar had to get approval from holders of a US$305m principal 7.25% CB to move ahead with the new CB. Held by Dragoneer Investment and Thrive Capital among others, the 7.25% CB is convertible at US$8.32 and deep in the money. The issue matures at the end of 2031, a year after the new CB.