Morning Commentary: Proficient convertibles notes offering eyed

By Abigail W. Adams

Portland, Me., Nov. 4 – After almost a month of inactivity, the convertible primary market was active on Thursday with the second deal of the week set to price after the market close.

Perficient Inc. plans to price $300 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 25% to 30%.

The deal was heard to be in the market with assumptions of 275 basis points over Libor and a 30% vol.

Using those assumptions, the deal looked 0.28 point to 0.34 point cheap at the midpoint of talk, a source said.

While the deal modeled cheap, it was rich compared to recent deals that have come to the market.

However, the deal will mostly appeal to hedge players, a source said.

Concurrent to the new offering, Perficient plans to enter into privately negotiated transactions with holders of its 1.25% convertible notes due 2025 to exchange a portion of the principal amount for cash and stock.

The deep-in-the-money 1.25% notes were changing hands at 257.5 early in Thursday’s session as Perficient stock surged.

Stock was trading up to $149.35, an increase of 13.70%, shortly before 11 a.m. ET.

The hedge transactions on the new offering and the unwinding of the hedge transactions of the 1.25% notes were most likely driving up the price of stock.

If holders of the 1.25% notes were on a 100% hedge, “there’s a lot of shares that need to be bought back to get the hedges correct,” on the new notes, a source said.

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