Pegasystems convertible notes, NextEra Energy equity units on tap; Integra improves

By Abigail W. Adams

Portland, Me., Feb. 18 – The convertibles primary market saw an active start to the truncated week with almost $3 billion of new paper on deck.

Pegasystems Inc. plans to price $450 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 0.75% to 1.25% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

Goldman Sachs & Co. LLC, BofA Securities, J.P. Morgan Securities LLC (active) and Barclays are bookrunners for the Rule 144A offering, which carries a greenshoe of 67.5% million.

In an overnight deal, NextEra Energy Inc. plans to price $2.5 billion of three-year $50-par equity units prior to the market open on Wednesday with price talk for a reoffer price of $49, a fixed coupon of 5.279% and a fixed premium of 25%, according to a market source.

The equity units were heard to be marketed with assumptions of 50 basis points over Libor and a 16% vol., according to a market source.

Using those assumptions, the fair value of the deal modeled out to $50.75. However, stock was expected to drop on Wednesday because the deal was an overnight deal, a market source said.

Meanwhile, the secondary space saw a slow start to the truncated week with many on the sidelines waiting to see which direction markets would go.

While equities opened with losses, they pared those losses as the day progressed with the Nasdaq composite turning positive by the market close.

There was $70 million in reported volume about one hour into the session and $280 million in mid-afternoon, sources said.

However, few names saw concentrated trading activity.

Some sources expressed surprise there was not more activity in tech names and the convertible notes of China-based companies given the volatility.

Integra Lifesciences Holdings Corp.’s 0.5% convertible notes due 2025 returned to focus and were “catching a bid” on the eve of their fourth-quarter earnings report, sources said.

Tesla Inc.’s convertible notes were active although little changed as stock again soared following upwardly revised price targets.

Pattern Energy Group Inc.’s 4% convertible notes due 2020 were making gains on both an outright and dollar-neutral basis as opposition mounted to the company’s takeover.

Integra in focus

Integra Lifesciences’ recently priced 0.5% convertible notes due 2025 were “catching a bid” on Tuesday on the eve of its fourth-quarter earnings report.

The 0.5% convertible notes were changing hands at 102.5 with stock off slightly Tuesday afternoon.

The notes were improved about 0.25 point dollar-neutral, a market source said.

Integra Lifesciences stock closed Tuesday at $58.82, a decrease of 0.19%.

The convertible notes had contracted about 1 point recently, the source said.

However, the notes were improving as the company prepares to release its fourth-quarter earnings prior to the market open on Wednesday.

Tesla gains

Tesla’s convertible notes were again major volume movers in the secondary space as stock soared on Tuesday.

While the notes, which move on a 95% to 100% delta, gained outright, they were little changed dollar-neutral, sources said.

Tesla’s 2% notes due 2024 rose 15 points outright to 283, a market source said.

With more than $8 million in reported volume, they were among the most active in the secondary space.

Tesla’s 1.25% convertible notes due 2021 were up almost 13 points to 238 and also saw $8 million in reported volume.

Tesla stock continued its upward momentum early Tuesday on the heels of a secondary offering.

Tesla stock traded to a low of $832.36 and a high of $860.00 before closing the day at $858.40, an increase of 7.30%.

The electric car manufacturer sold 2.65 million shares at $767.00 a share prior to the market open on Friday.

Tesla stock was again on the rise after two analysts raised their price target for the company.

Morgan Stanley analyst Adam Jonas raised his upside price target to $1,200 a share and base target to $500 a share from $650 and $360, respectively, Bloomberg reported.

While the price target was increased, Jonas maintained his underweight rating of the stock.

A Sanford C Bernstein analyst also raised the price target for the stock to $730 from $325.

Pattern Energy active

Pattern Energy’s soon-to-mature 4% convertible notes due July 15 were active and posting gains on both an outright and dollar-neutral basis in the secondary space.

The notes gained about 2.5 points outright. They were changing hands around 103.125 versus an equity price of $28.00.

The notes were improved about 0.25 point dollar-neutral, a market source said.

Pattern Energy stock traded to a high of $28.14 before closing the day at $27.90, an increase of 1.16%.

The notes were in focus and posting gains after opposition surfaced to the Canada Pension Plan Investment Board’s $2.63 billion buyout bid for the company.

Water Island Capital LLC, which manages funds that own over 4 million shares of Pattern Energy, urged shareholders to reject the previously agreed-to buyout offer of $26.75 per share, stating it undervalued the wind and solar energy company.

In light of recent valuations of renewable energy companies, Pattern Energy’s share price should exceed $30.00 per share, Water Island Capital stated in a letter to shareholders.

While the 4% convertible notes were trading with a negative yield to maturity on Tuesday, stock is flirting with the $28.175 conversion price of the notes.

Pattern Energy shareholders are scheduled to vote on the buyout on March 10.

Mentioned in this article:

Integra Lifesciences Holdings Corp. Nasdaq: IART

NextEra Energy Inc. NYSE: NEE

Pattern Energy Group Inc. Nasdaq: PEGI

Pegasystems Inc. Nasdaq: PEGA

Tesla Inc. Nasdaq: TSLA

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