Morning Commentary: New Mountain sells add-on; Altair Engineering, Q2 Holdings on tap

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 and two new deals slated to price after the market close.

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 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.

While the 5.75% notes were expected to trade north of 101, they were not active early in Wednesday’s session, a market source said.

Altair Engineering Inc. 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.

The deal looked cheap, sources 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, a source said.

The deal from the global technology company was coming at the right time following the stock market rally in the wake of Federal Reserve chairman Jerome Powell’s comments, a market source said.

Q2 Holdings Inc. plans to price $200 million of seven-year convertible notes after the market close on Wednesday with price talk 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 also modeled cheap and was expected to do well, sources said.

It 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, the deal modeled about 1.88 points cheap at the midpoint of talk, a source said.

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 north of 134 on Tuesday, a market source said.

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