Morning Commentary: Aspen Aerogels convertibles on deck; equity indexes mixed

By Abigail W. Adams

Portland, Me., June 29 – With the final day of the second quarter closing in, the convertibles primary market had one offering on deck.

Aspen Aerogels, Inc. plans to price $150 million of five-year green convertible notes after the market close on Wednesday with price talk for a coupon of 6% to 6.5% and an initial conversion premium of 22.5% to 27.5%.

The deal was in the market with assumptions of 1,250 basis points over Libor and a 45% vol.

Using those assumptions and assuming a 1% borrowing cost, the deal looked 7.17 points cheap at the midpoint of talk, a source said.

While the credit spread was wide, some sources questioned whether it was wide enough, given the size of the capital raise and the aerogel manufacturer’s market cap of $530.75 million.

The deal had a lot of moving parts, a source said, and is pricing concurrently with a $225 million secondary offering.

However, the deal was heard to be wall crossed and oversubscribed at the time of launch.

Meanwhile, activity in the secondary space remained light with equity markets again volatile.

The Dow Jones industrial average was up 131 points, or 0.41%, the S&P 500 index was up 0.14%, the Nasdaq Composite index was up 0.10% and the Russell 2000 index was down 1.4%.

There was $64 million in reported convertibles trading volume about one hour into the session with few names seeing concentrated trading activity.

End-of-quarter repositioning was driving activity in the space, a source said.

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