Morning Commentary: Akamai offering eyed; Workiva convertibles flat in early trading

By Abigail W. Adams

Portland, Me., Aug. 15 – The convertibles primary and secondary markets were active on Tuesday with a $1 billion offering slated to price after the market close and $625 million in new paper making its aftermarket debut.

Akamai Technologies Inc. is on deck with a $1 billion offering of long five-year convertible notes.

The refinancing deal looked good based on underwriters’ assumptions and adopted a unique approach to addressing its convertible notes maturing in 2025.

As market players eyed Akamai’s new offering, new paper from Workiva Inc. made its aftermarket debut.

The new paper fell flat in the aftermarket with the deal’s large upsize and tight pricing dragging down its aftermarket performance.

Akamai in focus

Akamai plans to price $1 billion of long five-year convertible notes after the market close on Tuesday with price talk for a coupon of 1.125% to 1.625% and an initial conversion premium of 22.5% to 27.5%.

The deal was heard to be in the market with assumptions of 125 basis points over SOFR and a 27% vol.

Using those assumptions, the deal looked about 1.5 points cheap at the midpoint of talk, a source said.

While there have been some grumblings about aggressive credit spreads, the pricing was in line with Akamai’s outstanding convertible notes, which trade with an implied credit spread of 100 bps, a source said.

The company is also cash rich with great EBITDA and was recently assigned investment-grade issuer credit ratings.

Moody’s Investors Service assigned Akamai an issuer credit rating of Baa2 and S&P Global Ratings assigned an issuer credit rating of BBB+ last week.

Akamai’s offering is a refinancing with proceeds to be used to repay at maturity a portion of the $1.15 billion outstanding of its 0.125% convertible notes due May 1, 2025 or cover cash amounts due upon their early conversion.

The refinancing stands in contrast to the majority of refinancing deals in the market, which have involved retiring outstanding amounts through privately negotiated transactions with existing holders.

“It’s a little unusual to prefund them,” a source said. “But they know what they’re doing.”

Workiva struggles

Workiva priced an upsized $625 million offering of five-year convertible notes after the market close on Monday at par with a coupon of 1.25% and an initial conversion premium of 30%.

Pricing came at the cheap end of tightened talk for a coupon of 1% to 1.25% and in line with a fixed conversion premium of 30%.

Initial price talk was for a coupon of 1% to 1.5% and an initial conversion premium of 27.5% to 32.5%.

The greenshoe was also upsized to $100 million.

The initial size of the offering was $525 million with a greenshoe of $75 million.

The new paper sank below par in pre-market trading with the notes marked at 99.25 bid, 99.75 offered, sources said.

They improved slightly after the market open with the notes trading at 99.5 bid, par offered with stock off early in the session.

The notes were flat dollar-neutral, a source said.

Workiva’s stock was changing hands at $102.50, a decrease of 0.48%, shortly before 11 a.m. ET.

Workiva’s offering came as a refinancing with proceeds used to repurchase $274 million in principal of its 1.125% notes due 2026 for $397 million in cash in privately negotiated transactions.

Several sources felt the terms of Workiva’s new offering were aggressive with the real value of the deal going to the holders of the outstanding notes that participated in the buyback.

The 1.125% notes were bought back at 144.9706.

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