PagerDuty convertible offering eyed; Rivian notes shoot higher; CMS Energy improves

By Abigail W. Adams

Portland, Me., Oct. 10 – The convertibles primary market unleashed another deal amid volatility in credit and equity markets with PagerDuty, Inc.’s $350 million offering of five-year convertible notes slated to price after the market close.

The latest refinancing deal to come to the market modeled cheap based on underwriters’ assumptions.

However, the real value will be in the buyback of its outstanding notes.

The offering was in the market as the heavy selling in equities and Treasuries of the previous week gave way to buying as markets dialed back expectations for additional rate increases based on the comments of several Fed members.

Treasury yields dropped double digits as rate expectations repriced with the 10-year yield closing Tuesday down 14 basis points to 4.664%.

The Dow Jones industrial average closed up 135 points, or 0.40%, the S&P 500 index closed up 0.52%, the Nasdaq Composite index closed up 0.58% and the Russell 2000 index closed up 1.15%.

Rivian Automotive Inc.’s new 3.625% convertible notes due 2030 continued to dominate activity in the secondary space with the notes a prime benefactor of the improved market conditions.

The notes shot higher on an outright basis although they were largely moving in line with stock.

Outside of Rivian, activity in the secondary space remained concentrated in investment-grade issues, which improved on Tuesday as credit spreads tightened.

CMS Energy Corp.’s 3.375% convertible notes due 2028 (Baa2) reclaimed a 94-handle in heavy volume.

PagerDuty in focus

PagerDuty plans to price $350 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 1.25% to 1.75% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of 350 bps over SOFR and a 40% vol.

Using those assumptions, the deal looked about 1.25 points cheap at the midpoint of talk.

The deal did not carry enough cheapness to make the offering attractive, a source said.

However, the deal was coming as a refinancing with holders of its outstanding notes to receive the real kiss in the offering.

The deal played to solid demand with books closing in the early afternoon, a source said.

The deal is expected to do well.

Proceeds will be used to repurchase for cash a portion of the company’s outstanding 1.25% convertible notes due 2025 in privately negotiated transactions.

The company will also repurchase up to $50 million in common stock in privately negotiated transactions.

The 1.25% convertible notes due 2025 closed the previous week at 95.625, according to Trace data.

Rivian shoots higher

Rivian’s 3.625% convertible notes due 2030 shot higher alongside stock in active trade on Tuesday with the notes trading up to a 105-handle.

The notes gained 3.5 points outright with stock up more than 5%.

They were trading at 105.375 versus a stock price of $19.71 early in the session, according to a market source. The notes were wrapped around 105 in the late afternoon.

While higher outright, the notes were largely moving in line with stock.

There was $34 million in reported volume.

Rivian’s stock traded to a low of $19.11 and a high of $19.98 before closing at $19.64, an increase of 4.58%.

Rivian’s stock has not disappointed in terms of volatility with the convertible notes ricocheting between deep outright losses to gains over the past two sessions.

The notes sank to a 96-handle on their aftermarket debut last Friday before recovering to close near par.

They again sank to a 98-handle in early trade on Monday before recovering to close the day around 101.25.

However, the notes have largely held on hedge amid the volatility and are now about flat dollar-neutral, a source said.

CMS gains

CMS Energy’s 3.375% convertible notes due 2028 improved in heavy volume on Tuesday with high-grade names across the board benefitting from the fall in Treasury yields.

The 3.375% notes gained about 0.5 point outright to reclaim a 94-handle.

The notes were wrapped around 94.375 in the late afternoon with the yield about 4.75%, according to a market source.

There was $26 million in reported volume.

CMS’ stock traded to a low of $53.16 and a high of $53.86 before closing at $53.53, up 0.32%.

The 3.375% notes traded as low as 92 last week as Treasury yields jumped and credit spreads pushed out.

However, high-grade names improved across the board on Tuesday as buyers returned to Treasuries.

Mentioned in this article:

CMS Energy Corp. NYSE: CMS

PagerDuty, Inc. Nasdaq: PD

Rivian Automotive Inc. Nasdaq: RIVN

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