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Morning Commentary: Akamai’s new $1 billion deal hits the market; Ligand convertibles on tap
By Abigail W. Adams
Portland, Me., May 17 – Akamai Technologies Inc.’s new 0.125% convertible notes due 2025 were the focus of the convertibles space on Thursday with the notes seen trading between par and 101.25 early in the session, sources said.
“We don’t get that many billion-dollar deals,” a market source said. “Akamai’s trading.”
Akamai priced $1 billion of seven-year convertible notes after the market close on Wednesday with a 0.125% coupon and an initial conversion premium of 27.5%.
Pricing came at the mid-point of talk for a coupon of 0% to 0.25% and at the cheap end of talk for an initial conversion premium of 27.5% to 32.5%.
“Good,” a source said of the pricing. “The market’s pushing back.”
Akamai’s deal was marketed with a credit spread of 100 basis points and a 34% vol., sources said. “No one believed the vol.,” the source said.
While the secondary market works to digest new paper from Akamai, Ligand Pharmaceuticals Inc.’s $650 million offering is on deck.
Ligand plans to price $650 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 0.5% to 1% and an initial conversion premium of 27.5% to 32.5%, according to a market source.
The deal is being marketed with a credit spread of 250 bps over Libor and a 35% vol., sources said. Using those assumptions, the deal models a little more than 0.5-point cheap at the mid-point of talk, a source said.
However, sources questioned those assumptions. With a wider credit spread and less vol., the offering is not attractive, a source said.
“These guys are really pushing the vol.,” the source said. The rich and fair value paper that has priced in recent months is “just going to blow up in our faces. Leave some cheapness in the market.”
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