Morning Commentary: Pluralsight, Ares Capital offer combined $800 million convertibles

By Abigail W. Adams

Portland, Me., March 5 – The convertibles primary market was active at the start of the week with two deals totaling $800 million on deck.

In an overnight deal, Ares Capital Corp. plans to price $350 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 4.125% to 4.625% and an initial conversion premium of 15% to 20%.

Using assumptions of 180 basis points over Libor and a 13.5% vol., the deal looked slightly cheap at the midpoint of talk, according to one market source.

Using assumptions of 250 bps over Libor and a 17% vol., the deal looked about 0.875 point rich at the midpoint of talk, another source said.

Due to the low vol. of the name, Ares Capital will not appeal to hedge accounts. “There’s no juice in these,” a source said.

However, Ares Capital is an investment-grade company and the deal carries an attractive coupon, sources said.

While described as “unexciting,” the deal is expected to do well based on its investment-grade status.

Pluralsight, Inc. plans to price $450 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 0.375% to 0.875% and an initial conversion premium of 30% to 35%.

The deal was heard to be in the market with a credit spread of 300 bps over Libor and a 40% vol., a market sources said.

Sources pegged the deal about 1.8 points cheap at the midpoint of talk.

However, sources questioned the credit spread given the short amount of time Pluralsight has been publicly traded.

The online education company specializing in technology learning went public in May 2018.

The convertible notes are pricing concurrently with an underwritten offering of 13,558,464 common shares from selling stockholders, from which the company will receive no proceeds.

The common stock offering is the reason why the notes are not slated to price until after the market close Wednesday, a market source said.

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