New convertible notes from Atlassian, JPMorgan trade below par; Teradyne notes expand

By Abigail W. Adams

Portland, Me., April 25 – The convertibles primary market priced $1.45 billion in two deals after the market close on Tuesday. Both deals were trading below par on their market debut on Wednesday.

Atlassian Corp. plc priced an upsized $850 million of five-year convertible notes at the cheap end of talk with a coupon of 0.625% and an initial conversion premium of 42.5%. They were seen trading as low as 98 during Wednesday’s session.

JPMorgan Chase Financial Co. LLC priced $600 million of cash-settled equity-linked notes due 2023 linked to the common stock of Voya Financial, Inc. with a 0.25% coupon and a 30% initial conversion premium at par, according to a news release.

While the new notes were off to a strong start early in the session, they also dropped below par later in the afternoon.

Teradyne Inc.’s 1.25% convertible notes due 2023 were major volume movers during Wednesday’s session with the notes dropping alongside the stock after reporting first-quarter earnings prior to the market open.

While down outright, the 1.25% notes were up about 1.5 points on a dollar-neutral basis, a market source said.

Atlassian’s deal

Atlassian’s upsized $850 million offering of five-year convertible notes priced at the cheap end of talk for a coupon of 0.125% to 0.625% and an initial conversion premium of 42.5% to 47.5%, according to a market source.

The initial size of the deal had been $750 million with a greenshoe of $112.5 million. The greenshoe was also upsized to $150 million.

The new notes were seen trading down on their market debut alongside the stock.

The notes were at par pre-open with stock down 50 cents and traded down to 99¼ early in Wednesday’s session, a market source said.

The notes were seen later in the afternoon trading at 98 with the stock down $2. Atlassian stock closed Wednesday at $55.17, a decrease of 3.57%.

The notes were largely trading in line dollar neutral, sources said.

The notes have a theoretical delta of 60% but will most likely trade with a delta of 50% to 55%.

While the deal priced on the cheap end of talk, sources called the price talk “ugly” with the deal modeling rich and leaving little room for an upside in the secondary space.

The additional $100 million tagged onto the deal was also seen as partly to blame for the notes’ performance in the secondary market.

“They saturated the aftermarket demand,” a market source said.

While the new 0.625% notes dominated trading activity in the convertibles space, the trading volume was light considering the size of the deal, sources said.

There were $37 million bonds on the tape early in Wednesday’s session and $87 million in late afternoon, sources said.

“Surprisingly, there’s not heavy volume,” a market source said early in the session. “It’s only half of what I thought it would be.”

The low trading volume is a sign the deal was tightly allocated. “It was probably chunky and put in good hands. The low volume is a sign it was well placed,” the source said.

JPMorgan’s deal

JPMorgan’s latest offering of cash-settled equity-linked notes due 2023 linked to the common stock of Voya Financial was off to a strong start but dropped below par in the afternoon.

JPMorgan’s $600 offering came at the cheap end of price talk for a coupon of 0% to 0.25% and an initial conversion premium of 30% to 35%.

The new 0.25% notes were seen trading up to 101 with about seven trades on the tape early in the session, a market source said.

The notes were seen trading at 99.625 later in the afternoon, a market source said.

The initial reference price will be determined after a five-day averaging period to begin on April 25. Voya stock closed Wednesday at $52.75, an increase of 0.08%.

JPMorgan’s old 0.25% cash-settled equity-linked notes tied to Voya traded up to par in a single trade on Wednesday, according to Trace data. The notes traded at 99.41 on Tuesday.

Teradyne expands

Teradyne’s 1.25% convertible notes due 2023 were a major volume mover during Wednesday’s session after the company reported first-quarter earnings prior to the market open.

While the convertible notes dropped more than 15 points outright with its stock down more than 16%, they were seen expanded about 1.5 points on a dollar-neutral basis, a market source said.

The convertible notes traded in a range of 125 to 136 on Wednesday, according to Trace data. Teradyne stock traded to a low of $34.35 and a high of $37.45 before ending the day at $34.70, a decrease of 16.39%.

While the Boston-based developer of test equipment for the semiconductor industry beat analyst expectations, the company set disappointing future guidance.

Teradyne reported revenue of $487 million for the first quarter and non-GAAP earnings per share of 45 cents, which beat analyst expectations for 42 cents.

Teradyne set guidance for the second quarter of revenue of $490 million to $520 million and non-GAAP earnings per share of 45 cents to 52 cents.

The consensus revenue guidance was for $690 million and earnings per share of 93 cents, Barron’s reported.

Future guidance was well below expectations due to decreased demand for products to test mobile devices.

Baird downgraded Teradyne to neutral from outperform and lowered its price target to $40.00 from $52.00 on Wednesday. Deutsche Bank maintained its hold rating but lowered its price target for Teradyne to $38.00 from $46.00.

Mentioned in this article:

Atlassian Corp. plc Nasdaq: TEAM

Teradyne Inc. NYSE: TER

Voya Financial, Inc. NYSE: VOYA

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