Ascendis convertibles gain, Blackstone drops in secondary debut; EQT shoots higher

By Abigail W. Adams

Portland, Me., March 25 – The first new paper in almost two weeks hit the convertibles secondary space on Friday.

Ascendis Pharma A/S priced $500 million of six-year convertible notes and Blackstone Mortgage Trust Inc. priced $300 million of five-year convertible notes after the market close on Thursday.

The deals were the first to clear the primary market since Travere Therapeutics Inc. priced its $316.25 million issue of 2.25% convertible notes due 2029 on March 8.

The new deal activity comes with one week left in the first quarter.

The first quarter of 2022 has been one of the lowest volume quarters for new deal activity since 2016, according to a market source.

Even with the strong rally of the previous week, tech and growth stocks remain badly battered with the current market environment still inhospitable to equity-linked financing, a source said.

Equities remained volatile on Friday with indexes wavering between gains and losses before closing the day mixed.

The Dow Jones industrial average closed the day up 153 points, or 0.44%, the S&P 500 index closed up 0.51%, the Nasdaq Composite closed down 0.16% and the Russell 2000 index closed up 0.12%.

The new paper dominated activity in the secondary space, accounting for almost half of the $500 million in reported volume about one hour before the market close.

The new paper was putting in mixed performances in the secondary space with Blackstone Mortgage dropping below par in active trading while Ascendis posted strong gains on an outright and dollar-neutral basis.

Outside of the new paper, the secondary space was relatively quiet.

EQT Corp.’s deep-in-the-money 1.75% convertible notes due 2026 surged higher above double par in active trading following news the U.S. would work to help supply Europe with natural gas.

Ascendis expands

Ascendis Pharma priced $500 million of six-year convertible notes after the market close on Thursday at par with a coupon of 2.25% and an initial conversion premium of 42.5%.

Pricing came at the midpoint of talk for a coupon of 2% to 2.5% and at the rich end of talk for an initial conversion premium of 37.5% to 42.5%, according to a market source.

The new paper was putting in a strong performance in the secondary space.

The notes traded as high as 102.75 shortly after the opening bell but came in alongside stock as the session progressed.

The notes were changing hands at 101 versus a stock price of $112 in the late afternoon.

The notes expanded about 2 points on hedge, a source said.

There was $106 million in reported volume about one hour before the market close.

Ascendis’ American Depositary Shares traded to a low of $112 and a high of $117.50 before closing the day at $114.39, a decrease of 2%.

Approximately $116.7 million of net proceeds will be used to fund a privately negotiated share repurchase of 1 million ADS.

Blackstone below par

Blackstone Mortgage Trust priced $300 million of five-year convertible notes after the market close on Thursday at par with a coupon of 5.5% and an initial conversion premium of 15%.

Pricing came cheaper than initial talk for a coupon of 4.75% to 5.25% and at the cheap end of talk for an initial conversion premium of 15% to 20%, according to a market source.

The new paper was not performing well in the secondary space.

The notes were on a 99-handle with stock up early in the session.

The convertibles were changing hands at 99.375 about one hour into the session, a source said.

They continued to move lower as the session progressed and were seen trading at 98.75 versus a stock price of $31.99 in the late afternoon.

There was $86 million in reported volume.

Blackstone Mortgage’s stock traded to a high of $32.15 and a low of $31.55 before closing the day at $32.11, an increase of 1.81%.

Even with widened pricing and a strong day for stock, the convertible notes performed poorly.

The coupon offered on the notes was unattractive given the 7.6% dividend paid on its common stock, a source said.

“They should have gone with a 10% coupon,” a source said.

The deal was marketed with assumptions of 400 basis points and a 20% vol.

While Blackstone Mortgage is a solid credit, the vol. assumption was a little aggressive, especially looking at the company’s stock performance in 2019 when it essentially flatlined.

EQT active

EQT’s deep-in-the-money 1.75% convertible notes due 2026 were active on Friday as stock surged alongside natural gas futures.

The 1.75% convertible notes climbed almost 20 points outright with stock up 11%.

The 1.75% notes were changing hands at 231.375 in the late afternoon.

There was $16 million in reported volume.

EQT’s stock traded to a low of $30.81 and a high of $34.47 before closing the day at $34.32, an increase of 11.65%.

EQT is one of the few ways to play the energy sector in the convertibles universe.

The natural gas producer and transporter’s convertible notes and stock have skyrocketed since Russia’s invasion of the Ukraine with the notes shooting above double par in late March.

The notes surged again on Friday as the U.S. pledged to supply Europe with natural gas; Europe currently imports 45% of its natural gas from Russia.

Mentioned in this article:

Ascendis Pharma A/S Nasdaq: ASND

Blackstone Mortgage Trust Inc. NYSE: BXMT

EQT Corp. NYSE: EQT

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