Morning Commentary: Altair convertible notes on tap amid volatile equity markets

By Abigail W. Adams

Portland, Me., June 9 – The convertibles primary market again reared its head with an overnight refinancing deal with equity markets again volatile as the 10-year Treasury yield marched higher.

Altair Engineering Inc. plans to price $200 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 1.25% to 1.75% and an initial conversion premium of 25% to 30%.

The deal was heard to be in the market with assumptions of 350 basis points over Libor and a 33% vol., according to a market source.

Using those assumptions, the deal looked 0.19 point cheap at the midpoint of talk.

The deal modeled the closest to fair value of any of the recent deals to clear the primary market.

It is the latest refinancing deal to price, and proceeds will be used to repurchase a portion of the artificial intelligence software company’s 0.25% convertible notes due 2024.

There are $230 million of the 0.25% notes outstanding with the last round lot trade at 127.375 on Monday, according to Trace data.

The majority of deals to price since the primary market revived activity have been refinancing deals from well-known convertibles issuers.

While the deal terms have become optically more attractive, it will take a large cap company previously unknown to the convertibles universe to spark a true repricing of the secondary market, sources have said.

As market players eyed the new deals in the work, the secondary space was quiet on what stood poised for another choppy day for equities.

Indexes wavered between gains and losses before sinking into the red shortly before 11 a.m. ET.

The Dow Jones industrial average was down 182 points, or 0.56%, the S&P 500 index was down 0.59%, the Nasdaq Composite index was down 0.49% and the Russell 2000 index was down 0.91% shortly before 11 a.m. ET.

There was $67 million on the tape about one hour into the session with no name seeing more than $5 million in reported volume.

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