Shockwave Medical on deck; Air Transport prices, jumps on aftermarket debut; Envista lower

By Abigail W. Adams

Portland, Me., Aug. 10 – The convertible bond primary market stood poised to cap one of the busiest weeks of the year with one last deal set to price.

Shockwave Medical Inc. plans to price $500 million in five-year convertible notes after the market close on Thursday.

The deal looked cheap based on underwriters’ assumptions. However, some felt the credit spread was aggressive.

The offering comes after Air Transport Services Group Inc. priced $350 million of six-year convertible notes in an overnight on Wednesday.

The wall-crossed offering was oversubscribed at the time of its launch and soared on its aftermarket debut with stock in the green on Thursday, a rarity among overnight deals.

The new paper hit the secondary space on a volatile day for equity markets with indexes launching the day strong following the latest Consumer Price Index report, which reflected a month-over-month increase in inflation despite the print coming in below expectations.

While equity markets initially cheered the data, selling set in midway through the session with indexes closing the day mixed.

The Dow Jones industrial average closed Thursday up 53 points, or 0.15%, the S&P 500 index closed up 0.03%, the Nasdaq Composite index closed up 0.12% and the Russell 2000 index closed down 0.52%.

There was $474 million in reported convertible bond trading volume about one hour before the market close with new paper active.

Hannon Armstrong Sustainable Infrastructure Capital Inc.’s 3.75% exchangeable notes due 2028 (Baa3) continued to gain steam after a lackluster aftermarket debut with the notes now posting gains on an outright and dollar-neutral basis.

However, Envista Holdings Corp.’s 1.75% convertible notes due 2028 continued to move lower on an outright basis with the notes now well below par although they maintained some of their initial dollar-neutral gains.

Shockwave eyed

Shockwave Medical plans to price $500 million in five-year convertible notes after the market close on Thursday with price talk for a coupon of 1% to 1.5% and an initial conversion premium of 25% to 30%.

The deal was in the market with assumptions of 300 bps over SOFR and a 40% vol., according to a source.

Using those assumptions, the deal looked about 3.5 points cheap at the midpoint of talk.

However, some felt the credit spread was aggressive.

The medical device company does have solid fundamentals with no outstanding debt, an $8 billion market cap and decent cash flow.

However, the company is still relatively young with its IPO in 2019.

Using a credit spread of 350 reduced the cheapness of the deal to about 2.5 points cheap at the midpoint of talk.

A credit spread of 400 bps reduced the cheapness to 1.375 points at the midpoint of talk.

Air Transport’s overnight

In a wall-crossed offering that was oversubscribed at the time of launch, Air Transport priced $350 million of six-year convertible notes after the market close on Wednesday at par with a coupon of 3.875% and an initial conversion premium of 42.5%.

Pricing came at the midpoint of talk for a coupon of 3.75% to 4% and at the cheap end of talk for an initial conversion premium of 42.5% to 45%.

The deal was in the market with assumptions of 450 bps over SOFR and a 36% vol., according to a market source.

Using those assumptions, the deal looked about 3.75 points cheap at the midpoint of talk, a source said.

The notes had a strong start in the aftermarket and were marked at 102.5 bid with stock flat shortly after the opening bell.

They were trading just shy of 104.5 versus a stock price of $23.04 about one hour into the session and were marked at 103.75 versus a stock price of $22.95 in the late afternoon.

The notes expanded 2 to 2.5 points dollar-neutral, a source said.

Air Transport stock traded to a low of $22.11 and a high of $23.28 before closing the day at $22.91, an increase of 2.14%.

While overnight offerings typically destroy stock, the company’s repurchase of 5.4 million shares of common stock in privately negotiated transactions and the repurchase of shares from Amazon under an existing agreement helped stabilize the stock price.

The deal came as a refinancing with $204.5 million in principal of its 1.125% convertible notes due 2024 repurchased for $203.2 million in privately negotiated transactions.

The buyback price was 99.375, a source said.

The notes were last trading around 96.

New paper

The new paper to price over the past week remained active on Thursday with the trajectories changing course since their initial day in the market.

While Hannon Armstrong’s 3.75% exchangeable notes due 2028 were off to a weak start in the aftermarket, the notes have gained steam over the past two sessions with the notes now up on an outright and dollar-neutral basis.

While Envista’s 1.75% convertible notes due 2028 played to heavy demand during bookbuilding and had a strong aftermarket debut, the notes are now trading below par and have given back some of their initial dollar-neutral gains.

Hannon Armstrong’s 3.75% exchangeable notes due 2028 continued to rise on an outright and dollar-neutral basis on Thursday.

The notes were trading at 101.125 versus a stock price of $22.82 in the late afternoon, according to a market source.

They continued to improve dollar-neutral, a source said.

Hannon Armstrong stock traded to a low of $22.41 and a high of $23.19 before closing the day at $23.12, an increase of 2.98%.

The 3.75% notes had a weak start in the aftermarket on Tuesday with the notes trading down to a 99-handle and falling flat dollar-neutral.

Envista’s 1.75% convertible notes due 2028 continued to move lower on an outright basis on Thursday with the notes now well below par.

They were changing hands at 98.125 versus a stock price of $32.79 in the late afternoon.

While down outright, the notes were holding on hedge after coming in about 0.5 point dollar-neutral the previous session.

Envista stock traded to a high of $33.84 and a low of $32.44 before closing the day at $32.67, a decrease of 1.98%.

The 1.75% convertible notes had a strong start in the aftermarket on Tuesday after playing to heavy demand during bookbuilding with the notes expanding about 1 point dollar-neutral.

Mentioned in this article:

Air Transport Services Group Inc. Nasdaq: ATSG

Envista Holdings Corp. NYSE: ENV

Hannon Armstrong Sustainable Infrastructure Capital Inc. NYSE: HASI

Shockwave Medical Inc. Nasdaq: SWAV

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