Like Avaya back then, RingCentral has maturing convertible bonds that are out of the money: $1.65bn across two issues maturing in March 2025 and March 2026. They convert at $360.43 and $424.03, respectively, according to a recent SEC filing.

At the time of writing, RingCentral’s stock was trading at $30.81 per share, after tumbling sharply earlier this week on an announcement that the company’s founder and CEO Vlad Shmunis was stepping down and handing the reins to board member Tarek Rabbiati.

The company has $425.4m in liquidity, including a $200m undrawn revolver and $225.4m in cash and cash equivalents as of the end of Q2.

To help pay down the converts, lead left Deutsche Bank is offering $400m of seven-year senior unsecured notes at 8.5%-8.75%. The deal was originally expected to price on 14 August, but was accelerated this morning — books now close at 11.30am ET today.

New face

Price talk on RingCentral’s bond deal is high relative to its Ba3/BB corporate rating. The average yield on double-B bonds is currently 6.87%.

That premium reflects uncertainty over the company’s outlook, given its falling share price and liquidity position, sources said. It’s also a new name to the high yield market, which always demands some extra juice.

“The equity markets know them, but high yield investors don’t, so the process is going to be more complex,” said a buyside source.

Despite the recent departure of the CEO and its tumbling share price, RingCentral’s Q2 earnings released earlier this week showed some optimism.

Top-line sales rose 11% year-over-year to $539m, driven by an increase in middle-market and enterprise client volumes. The company’s adjusted operating margin also grew to an all-time high of 19.4%.

The company is marketing the new debt on $497.6m of LTM adjusted EBITDA through 30 June, for total and net leverage of 3.8x and 3.3x (for a more detailed look into RingCentral's credit profile, 9fin clients can check out our Credit QuickTake here).

Competition

No one is suggesting that RingCentral is facing the same fate as Avaya, and based on the accelerated syndication timeline for this deal it seems like buyside demand has been pretty strong.

But there are some similarities: firstly, both companies are subject to similar competitive dynamics, and secondly, they’re part of a longer trend of tech companies hitting the HY market to take out converts that were issued in better times (we covered this in a podcast with Advent Capital earlier this year).

Unified communications is an extremely competitive space. RingCentral is more future-forward than Avaya (it offers cloud-based solutions, uses AI, and is less dependent on legacy hardware) and has a pretty solid position, but any company in this arena is up against household names like Microsoft, Zoom, Alphabet, and Salesforce, which owns Slack.

As we noted above, RingCentral’s earnings appear to be on the up — a far cry from Avaya, which slashed its outlook just after hitting the bond market last year. Still, the sharp fall in Ring’s stock price after the CEO’s departure will understandably put some investors on edge.

As for the matter of the out-of-the-money converts, the gap between the strike price and the current stock price is pretty huge. That reflects how good the pandemic was for cloud communications companies (Ring’s stock peaked at around $443 in 2021) and how the market has fallen back to earth since then.

But even after this week’s fall in the share price, there’s still nearly $3bn of equity market cap below these notes. And while competition is fierce, the opportunity is huge: according to some estimates, market penetration of UCaaS systems is still less than 10%.

RingCentral and Deutsche Bank did not return requests for comment.