Morning Commentary: Convertible primary prices $960 million in three deals, two trade up

By Abigail W. Adams

Portland, Me., March 9 – New paper was the focus of the convertible space on Friday with the primary market pricing a total of $960 million in convertible notes after the market close on Thursday.

Etsy, Inc. priced $300 million in five-year convertible notes after the close on Thursday at 99 with a fixed coupon of 0% and a fixed initial conversion premium of 37.5%, according to a market source.

Price talk for the bought deal had been for an issue price of 98.5 to 99.5, a fixed coupon of 0% and a fixed initial conversion premium of 37.5%, according to a market source.

The 0% convertible notes were trading up about 1.5 points on a dollar-neutral basis from their issue price of 99 early in Friday’s session and were higher pre-open, a market source said. “It was set up as a 30% hedge happy meal,” a market source said.

There was good volume in the notes from both buyers and sellers.

Guidewire Software Inc. priced an upsized $360 million of seven-year convertible notes after the market close on Thursday with a coupon of 1.25% and an initial conversion premium of 30%.

Pricing came at the rich end of talk for a coupon of 1.25% to 1.75% and at the midpoint of talk for an initial conversion premium of 27.5% to 32.5%, according to a market source.

The new 1.25% notes were seen up about 1.5 to 2 points dollar-neutral, a market source said.

“There’s pretty good demand across the board,” a market source said. “The market is still looking for paper.”

While new deals from Guidewire and Etsy were in demand and expanding on their market debut, Deutsche Bank AG, London Branch’s 1% cash-settled equity-linked notes linked to the common stock of Voya Financial, Inc. were not seen on the tape.

Deutsche Bank priced $300 million of cash-settled equity-linked notes linked to the common stock of Voya Financial with a 1% coupon and a 30% threshold price, according to a news release.

The deal came at the cheap end of talk for a coupon of 0.5% to 1% and the middle of talk for a threshold of 27.5% to 32.5%.

The threshold price will be set using a 30% premium to the initial price, which will be determined over a five-day averaging period of Voya common stock.

The terms of Deutsche Bank’s cash-settled equity-linked notes are similar to JPMorgan’s 0.25% cash-settled notes linked to Voya stock, which also waited until the end of a five-day averaging period to set the initial price.

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