Morning Commentary: New Boingo, Apollo Commercial convertible notes hit the market

By Abigail W. Adams

Portland, Me., Oct. 3 – The convertible secondary space opened Wednesday with $375 million in new paper hitting the market.

Boingo Wireless, Inc. priced $175 million of five-year convertible notes after the market close on Tuesday.

The new paper dominated activity in the secondary space with the notes trading up on an outright and dollar-neutral basis.

Apollo Commercial Real Estate Finance, Inc. priced $200 million of five-year convertible notes after the market close on Tuesday. The new paper was hovering around its issue price in secondary trading.

Boingo trades up

Boingo priced $175 million of five-year convertible notes at the midpoint of talk with a coupon of 1% and an initial conversion premium of 30%.

Price talk had been for a coupon of 0.75% to 1.25% and an initial conversion premium of 27.5% to 32.5%.

The notes were “a case study of a bond being priced cheap and opening up quickly,” a market source said.

The notes were at 102 bid prior to the market open and traded as high as 103.25 early in the session with stock up less than 1%, a market source said.

The notes were expanded a couple of points dollar-neutral.

More than $50 million bonds had traded about one hour after the opening bell. There were a lot of flippers involved in the deal, a source said.

Boingo was marketed with a credit spread of 350 basis points over Libor and a 40% vol., which modeled 1.5 points to 2 points cheap at the midpoint of talk, sources said.

The credit spread was wider than most tech deals that have come to market in the past year, which sources attributed to the company’s cash flow and EBITDA.

However, others were impressed with the company’s management and business model, which has a lot of potential, a market source said.

Apollo trades in line

Apollo priced $200 million of five-year convertible notes with a coupon of 5.375%, an initial conversion premium of 10% and a reoffer price of 98.5.

Pricing came in line with price talk for a fixed coupon of 5.375% and fixed initial conversion premium of 10% and at the cheap end of talk for an issue price of 98.5 to 99.5, according to a market source.

The yield to maturity on the notes is 5.72% with the issue discount lowering the conversion premium to 7%, a market source said.

“At that price the premium dynamics work better,” the source said.

The notes were hovering around their issue price in secondary trading. The notes traded as low as 98.25 and as high as 99 with most trades around 98.75, sources said.

About $15 million of the bonds traded early in Wednesday’s session.

“It doesn’t get much more boring,” a market source said of the new paper.

The deal, which priced the same day it launched, was most likely a bought deal with the discounted issue price a result of pre-marketing, a market source said.

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