MongoDB hits the market; Fortive, Momo on tap; Red Hat, Alcoa trade

By Abigail W. Adams

Portland, Me., June 26 – The convertibles space will end a high-volume month of new issuance with a billion-dollar week of deals.

MongoDB, Inc. priced an upsized $250 million in six-year convertible notes prior to the market open on Tuesday with a coupon of 0.75% and an initial conversion premium of 27.5%.

The notes were seen trading below par on their secondary market debut.

Fortive Corp. plans to price $1 billion, or 1 million shares, of three-year series A mandatory convertible preferred stock and Momo Inc. plans to price $650 million of seven-year convertible notes after the market close on Tuesday.

Both deals looked cheap and are expected to do well, sources said.

Not including the $1.9 billion set to price on Tuesday, the convertible space has seen $5.54 billion in new paper price in 19 deals during June compared to $1.602 billion that priced in 7 deals during June 2017, according to Prospect News data.

The momentum is expected to continue with new deal volume in 2018 on its way to reaching the highest it has been since 2007, according to the Barclay’s report “Resurgence in Convert Issuance.”

While new deal volume intensifies in the primary market, trading volume in the secondary space remained light outside of new paper from MongoDB on Tuesday.

Red Hat Inc.’s 0.25% convertible notes due 2019 and Alcoa Corp.’s 1.625% convertible notes due 2019 were among the major volume movers of the day.

MongoDB below par

MongoDB’s newly price 0.75% convertible notes due 2024 were trading down alongside its stock on Tuesday.

The New York-based software company and developer of an open-source database platform priced an upsized $250 million six-year convertible note offering at the midpoint of talk for a coupon of 0.5% to 1% and at the cheap end of talk for an initial conversion premium of 27.5% to 32.5%.

The initial size of the deal had been $200 million. The greenshoe was also upsized to $50 million from $30 million.

The notes were seen trading around 99.5 with the stock down more than $1 early in Tuesday’s session. They were seen trading at 99.1 versus an equity price of $52.37 at mid-afternoon.

With a theoretical delta of 75%, the notes were expanding about 1 point dollar-neutral, a market source said.

“If they were hedged at 75%, they’re holding up,” the source said.

The 75% delta did seem heavy and the notes will probably trade with a lighter hedge, the source said.

The deal was put up on a 60% hedge, another source said.

The notes were seen nuking alongside the stock and were largely flat dollar-neutral.

The new notes dominated trading activity in the secondary space with more than $32 million on the tape by late afternoon.

MongoDB stock closed Tuesday at $51.52, a decrease of 3.61%.

Fortive eyed

Fortive plans to price $1 billion in series A mandatory convertible preferreds after the market close on Tuesday with price talk for a dividend of 5% to 5.5% and an initial conversion premium of 17.5% to 22.5%, according to a market source.

Underwriters are marketing the deal with a credit spread of 100 basis points over Libor and a 20% vol., market sources said. The deal looks to be about 3 points cheap, sources said.

The deal was reported to be doing well during bookbuilding with investors liking the deal at the mid-point of talk, a source said.

With WPX Energy Inc.’s 6.25% mandatory convertible preferred stock coming due on July 31 and Frontier Communications Corp.’s 11.125% series A mandatory convertible preferred stock coming due on June 29, investors are eyeing Fortive’s new $1 billion deal to replace it, a market source said.

With a large issuance at hand, Fortive common stock was holding up well which will hopefully continue when the deal hits the market, the source said.

Fortive common stock closed Tuesday at $75.2, a decrease of 3.13%.

Momo eyed

Momo plans to price $650 million of seven-year convertible notes after the market close on Tuesday with price talk for a coupon of 1% to 1.5% and an initial conversion premium of 40% to 45%, according to a market source.

Underwriters are marketing the deal with a credit spread of 300 bps over Libor and a 40% vol., sources said.

The deal modeled about 2.7 points cheap at the mid-point of talk, which is where it is expected to price, sources said.

However, some sources pegged the credit spread wider at 400 bps.

The Beijing-based mobile social networking platform would probably have a credit spread of around 150 bps if it was a United States-based company, a market source said.

However, the credit spread is wider due to the complications involved with American depositary shares and other factors involving China-based corporations, especially with trade war chatter rattling markets, the source said.

The deal was reported to be doing well during bookbuilding, a market source said.

Volume movers

While the market eyed Fortive and Momo, trading volume was relatively light in the secondary space with about $290 million on the tape by late afternoon.

Red Hat’s 0.25% convertible notes due 2019 were second only to MongoDB in trading volume with $19 million on the tape.

The notes continued to trade around parity.

They were seen changing hands at 189 versus an equity price of $139.14. Red Hat stock traded to a low of $137.87 and a high of $141.54 before closing the day at $138.46, a decrease of 0.94%.

Red Hat’s 0.25% convertible notes have been active since last week when the company’s stock dropped more than 14% after releasing disappointing guidance in its first quarter earnings report.

Alcoa’s 1.625% convertible notes due 2019 were also active in the secondary space with about $8 million of bonds on the tape by late afternoon.

The notes were seen trading at 100.5 versus an equity price of $16.78, according to a market source. The notes were largely unchanged on an outright basis.

Alcoa stock closed Tuesday at $45.80, an increase of 3.48%. The Pittsburgh-based aluminum producer is on the front lines of tariff talk.

The company is working to bring a smelting operation in Indiana back on line to increase domestic aluminum production capacity.

Mentioned in this article:

Alcoa Corp. NYSE: ARNC

Fortive Corp. NYSE: FTV

Momo Inc. Nasdaq: MOMO

MongoDB, Inc. Nasdaq: MDB

Red Hat Inc. NYSE: RHT

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