Morning Commentary: Market awaits Q2 deal; Extra Space Storage active after earnings

By Abigail W. Adams

Portland, Me., Feb. 21 – The bookbuilding process is underway for Q2 Holdings, Inc.’s $200 million offering of five-year convertible notes, which is expected to price after the market close on Wednesday.

Price talk is for a coupon of 0.25% to 1.25% and an initial conversion premium of 22.5% to 27.5%, according to a market source. Some did not find the deal attractive.

Underwriters are marketing the deal with a credit spread of 300 basis points over Libor and a 30% volatility, a market source said.

“The credit seems too tight and the volatility assumption too high for an unknown convert name,” the source said.

The Austin, Texas-based provider of cloud-based digital banking services is a first-time issuer of convertible notes.

Extra Space Storage LP’s 3.125% convertible notes due 2035 were active early in Wednesday’s session after the Salt Lake City-based operator of self-storage facilities reported fourth-quarter and year-end results after the market close Tuesday.

The 3.125% convertible notes climbed about 2 points on an outright basis to the 108 to 109 range. Stock was up to $83.29, an increase of 3.15%, early in Wednesday’s session.

Extra Space Storage reported adjusted earnings per share of $1.12 for the fourth quarter and adjusted earnings per share of $4.38 for 2017. The earnings per share consensus estimate was $1.08 for the fourth quarter.

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