Akamai eyed; Ligand on tap; New Relic, Alteryx, Prospect Capital, KKR REIT hit market

By Abigail W. Adams

Portland, Me., May 16 – The convertibles space was hopping on Wednesday with four new deals totaling $850 million hitting the secondary market, a $1 billion deal set to price after the market close and a $650 million deal on tap for Thursday.

Alteryx, Inc. priced $200 million of five-year convertible notes after the market close on Tuesday with a discounted issue price of 98 and at the cheap end of talk with a coupon of 0.5% and an initial conversion premium of 42.5%.

New Relic Inc. sold $435 million of five-year convertible notes prior to the market open on Wednesday at the mid-point of talk with a coupon of 0.5% and an initial conversion premium of 27.5%.

Prospect Capital Corp. priced an upsized $90 million add-on to its 4.95% convertible notes due 2022 prior to the market open on Wednesday at the cheap end of talk with an issue price of 98.4 to yield 5.38%, according to an FWP filing with the Securities and Exchange Commission.

KKR Real Estate Finance Trust Inc. sold $125 million of five-year convertible notes prior to the market open on Wednesday at the cheap end of talk with a coupon of 6.125% and an initial conversion premium of 10%.

The new deals accounted for nearly 50% of the total trading volume during Wednesday’s session with some seen just barely above their issue price and others trading well above.

While the deals that hit the market on Wednesday were in focus, all eyes were on Akamai Technologies Inc.’s $1 billion offering of seven-year convertible notes, which is set to price after the market close on Wednesday.

Sources pegged the deal at either fair value or about 0.75 point cheap.

Ligand Pharmaceuticals Inc. plans to price $650 million in 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.

Barclays and Goldman Sachs & Co. are bookrunners for the Rule 144A deal, which carries a greenshoe of $100 million.

Alteryx’s discount

Price talk for Alteryx’s $200 million offering of five-year convertible notes was revised during the bookbuilding process to include a discounted issue price, a market source said.

Alteryx priced after the market close on Tuesday with an issue price of 98 and at the cheap end of talk with a coupon of 0.5% and an initial conversion premium of 42.5%.

Price talk had been for a coupon of 0% to 0.5% and an initial conversion premium of 42.5% to 47.5%, according to a market source.

The pricing was not a surprise, a market source said. The deal was marketed with a credit spread of 275 basis points over Libor and a 45% vol., which modeled rich, sources said.

The credit spread was aggressive, a market source said, pegging it more at 325 bps. Alteryx stock was also down 9% on Tuesday during the bookbuilding process.

They were seen at 97.75 bid, 98.75 offered early in the session and were seen trading at 98.75 later in the afternoon with the stock up, sources said.

The notes closed the day at 99 bid, 99.5 offered. With a 64% delta, the notes were flat on a dollar-neutral basis at market close, a source said.

Alteryx stock closed Wednesday at $32.11, a 3.21% increase.

About $51 million of the bonds traded by late afternoon.

New Relic in demand

Of the deals that hit the market on Wednesday, new paper from New Relic saw the most trading activity and reached the highest trading levels.

New Relic priced $435 million of five-year convertible notes prior to the market open on Wednesday at the mid-point of talk with a coupon of 0.5% and an initial conversion premium of 27.5%.

Price talk had been for a coupon of 0.25% to 0.75% and an initial conversion premium of 25% to 30%, according to a market source.

New Relic’s 0.5% notes were seen at 100.75 bid early in the session. They were seen at 102.25 bid, 103 offered later in the afternoon with the notes seen trading between 102.5 and 103, sources said.

“They did really well,” a market source said.

The notes expanded about 1 point on a dollar-neutral basis. However, it was the outright buyers that were chasing the notes, a source said.

New Relic’s 0.5% notes dominated trading activity in the secondary space with more than $111 million of the bonds traded by late afternoon.

New Relic stock closed Wednesday at $87.74, up 0.96%.

Prospect Capital’s add-on

Prospect Capital’s $90 million add-on to its 4.95% convertible notes due 2022 kickstarted trading activity of the notes.

The add-on priced prior to the market open on Wednesday at the cheap end talk with an issue price of 98.4 to yield 5.38%, according to an FWP filing with the SEC.

Price talk had been for an issue price of 98.4 to 98.5 with an effective yield of 5.38% to 5.36%, according to a market source.

The deal was marketed with a credit spread of 160 bps and a 15% vol., a market source said.

The add-on will form a single issue with the existing 4.95% convertible notes. Prospect Capital priced $225 million of the 4.95% convertible notes with an issue price of 98 in April 2017.

The 4.95% convertible notes due 2022 were wrapped around 98.625 during Wednesday’s session with about $24 million of the bonds traded by late afternoon.

Prospect Capital’s stock “never really goes up,” a market source said. “They rely on the yield.”

KKR’s deal

Of the deals that hit the market Wednesday, KKR Real Estate Finance Trust saw the least activity in the secondary market.

KKR Real Estate Finance Trust priced $125 million of five-year convertible notes prior to the market open on Wednesday at the cheap end of talk with a coupon of 6.125% and an initial conversion premium of 10%.

Price talk had been for a coupon of 5.625% to 6.125% and an initial conversion premium of 10% to 15%, according to a market source.

The deal was marketed with a credit spread of 325 bps and a 15% vol., which modeled 2 points cheap at the mid-point of talk, a market source said.

The high coupon on the convertible notes offering is due to the high dividend of KKR REIT’s common stock, another source said.

The 6.125% notes were seen at 100.125 bid, 100.625 offered mid-afternoon, a market source said.

They were seen trading at 100.375 with about $7 million bonds on the tape by late afternoon.

Like most REITs, the notes were predominately trading to outright players due to the low volatility of the stock, the source said.

All eyes on Akamai

While the deals that hit the market Wednesday dominated trading activity, all eyes were on Akamai’s $1 billion offering of seven-year convertible notes.

In one of the largest deals to date this year, Akamai plans to price $1 billion of seven-year convertible notes after the market close on Wednesday with price talk for a coupon of 0% to 0.25% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

“Everyone’s looking at it,” a market source said.

The deal is being marketed with a credit spread of 100 bps and a 34% vol., which models about 0.75 point cheap at the mid-point of talk, a market source said.

The 34% vol. assumption “is outrageous,” a market source said. “A 30% vol. is more reasonable.”

Another source pegged the deal at fair value with a credit spread of 75 bps and a 31% vol.

The deal looked slightly rich to fair value, another source said.

The deal would have to price on the cheap end of talk for a par issue price to make sense, a source said.

However, underwriters may be relying on fundamental investors more interested in the Akamai story than the valuation at issue, the source said.

While bookbuilding for Akamai’s new offering was in the works, the Cambridge, Mass.-based content delivery network and cloud service provider’s 0% notes due 2019 were contracting, a market source said.

The notes were seen trading between 101.25 to 101.625 with the stock down about $1.50. They were contracted about 0.625 point dollar neutral, a market source said.

The deal will appeal to outright buyers, a market source said. However, there is concern about interest rates.

With the 10-year Treasury note again above 3%, “those tiny coupons are going to start hurting,” a source said.

Mentioned in this article:

Akamai Technologies Nasdaq: AKAM

Alteryx, Inc. NYSE: AYX

KKR Real Estate Finance Trust Inc. NYSE: KREF

Prospect Capital Corp. Nasdaq: PSEC

New Relic Inc. NYSE: NEWR

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.