Coupa on tap; Altair Engineering looks cheap; Q2 Holdings upsizes, tightens talk

By Abigail. W Adams

Portland, Me., June 5 – The convertibles primary market was active on Wednesday with an add-on pricing prior to the market open, two deals slated to price after the market close on Wednesday and one deal on deck for after the market close on Thursday.

Coupa Software plans to price 500 million of six-year convertible notes after the market close on Thursday with price talk for a coupon of 0.125% to 0.625% and an initial conversion premium of 30% to 35%, according to a market source.

Barclays, Morgan Stanley & Co. LLC and Goldman Sachs & Co. LLC are joint bookrunners for the Rule 144A offering, which carries a greenshoe of $75 million.

Altair Engineering Inc. plans to price $175 million of five-year convertible notes and Q2 Holdings Inc. plans to price an upsized $275 million of seven-year convertible notes after the market close on Wednesday.

Both deals looked cheap and were coming at a good time with markets rallying in the wake of Federal Reserve chairman Jerome Powell’s comments, a market source said.

New Mountain Finance Corp. priced an upsized $75 million add-on to its 5.75% convertible notes due Aug. 15, 2023 prior to the market open on Wednesday.

While volume was light, the 5.75% convertible notes were seen above their issue price in the secondary space.

While focus was on the new deals in the pipeline, the convertibles secondary space saw decent trading volume with $371 million on the tape by the mid-afternoon.

Ares Capital Corp.’s convertible notes saw high volume activity although the notes were largely trading sideways.

iQIYI Inc.’s 2% convertible notes due 2025 were active and making gains on a dollar-neutral basis as they dropped outright.

New Mountain adds-on

New Mountain Finance sold an upsized $75 million add-on to its 5.75% convertible notes due Aug. 15, 2023 prior to the market open on Wednesday with a reoffer price of 100.5 plus $17.8889 of accrued interest.

Pricing came at the middle of revised price talk for a reoffer price of 100.25 to 100.75. Initial talk was for a reoffer price of 100.75 to 101.25, according to a market source.

The greenshoe was also upsized to $11.25 million. The initial size of the deal was for $50 million with a greenshoe of $7.5 million.

The deal looked cheap with New Mountain’s convertible notes trading with one of the widest spreads in the BDC sector.

The large upsizing of the offering was a positive sign, a market source said.

While the 5.75% notes were slow to trade early in the session, they were changing hands around 101.25 in the mid-afternoon with more than $7.4 million in reported volume, sources said.

Prior to the add-on, the notes were quoted around 102. The add-on lifted the total outstanding amount of the 5.75% convertible notes to $190 million.

Altair looks cheap

Altair Engineering plans to price $175 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 0.125% to 0.375% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

While the deal was more expensive than the offering from Q2 Holdings and the coupon was low, the deal still looked reasonably priced for the current market, a source said.

Using a credit spread of 300 bps over Libor and a 36% vol., the deal modeled about 0.75 point cheap at the midpoint of talk, another source said.

Q2 upsizes, tightens talk

Q2 Holdings upsized its offering of seven-year convertible notes to $275 million and tightened talk to a coupon of 0.75% to 0.875% and an initial conversion premium of 27.5%, according to a market source.

Initial talk was for a coupon of 0.75% to 1.25% and an initial conversion premium of 25% to 30%, according to a market source.

The deal modeled cheap based on the initial price talk, sources said.

The deal was heard to be in the market with a credit spread of 325 bps over Libor and a 33% vol., according to a market source.

Using those assumptions, sources pegged the deal between 1.75 points and 1.88 points cheap at the midpoint of talk.

Concurrently with the offering, Q2 Holdings is pricing a $155 million, or 2.15 million share, common stock offering.

Q2 is a repeat issuer of convertible notes and tapped the market as recently as February 2018.

Q2’s outstanding 0.75% convertible notes due 2023 were trading down on Wednesday.

The notes dropped about 2 points outright. They were changing hands at 132.25 versus a stock price of $69.72 Wednesday afternoon.

About $8 million of the bonds were on the tape.

Q2 stock closed Wednesday at $70.41, a decrease of 3.34%.

Ares Capital in focus

While focus was on the new deals in the pipeline, Ares Capital’s convertible notes saw high-volume activity in the secondary space although with little change.

Ares Capital’s 4.625% convertible notes due 2024 were changing hands just shy of 102 on Wednesday.

More than $24.5 million of the bonds were on the tape by the late afternoon.

The specialty finance company’s 3.75% convertible notes due 2022 were changing hands at 100.875 with about $11 million of the bonds on the tape.

The notes are both rated investment grade.

Given the volatility in the markets, buyers were looking for higher yielding investment-grade paper, a source said.

iQIYI expands

iQIYI’s 2% convertible notes due 2025 were active on Wednesday with the notes expanding dollar-neutral as they traded down on an outright basis.

The 2% notes were down about 1 point to change hands at 90.125. They were up about 0.75 point dollar-neutral, market source said.

About $14 million of the bonds were on the tape by the late afternoon.

The Beijing-based online entertainment service provider’s ADSs continued to trade down on Wednesday despite a broader market rally.

iQIYI’s ADSs closed the day at $17.66, a decrease of 3.02%.

Mentioned in this article:

Altair Engineering Inc. Nasdaq: ALTR

Ares Capital Corp. Nasdaq: ARCC

Coupa Software Nasdaq: COUP

iQIYI Inc. Nasdaq: IQ

New Mountain Finance Corp. NYSE: NMFC

Q2 Holdings Inc. NYSE: QTWO

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