Altair convertibles down outright, flat on swap; ConMed contracts; travel names eyed

By Abigail W. Adams

Portland, Me., June 10 – It was a weak day in the convertibles secondary space as equities got pummeled following May’s Consumer Price Index report with the larger-than-anticipated increase sparking a reassessment of the Federal Reserve’s rate hike schedule.

The Dow Jones industrial average closed the day down 880 points, or 2.73%, the S&P 500 index closed down 2.91%, the Nasdaq Composite index closed down 3.52% and the Russell 2000 index closed down 2.63%.

The 10-year Treasury yield shot as high as 3.172% before settling at 3.16% with the yield once again brushing up against its multi-year high of 3.208%.

There was $533 million on the tape about one hour before the market close with most names on the tape lower, sources said.

New paper from Altair Engineering Inc. made its aftermarket debut amid the brutal backdrop with the notes well below par on an outright basis although they were flat on swap.

ConMed Corp.’s recently priced 2.25% convertible notes due 2027 sank further below par and contracted dollar-neutral as the company’s stock continued to move lower with broader markets.

Travel names were under particular pressure following the CPI report.

Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB) were weaker in high-volume activity.

However, the notes were holding up well compared to industry peer American Airlines Group Inc.’s 6.5% convertible notes due 2025 which saw a large dollar-neutral contraction during Friday’s session.

Altair down outright

Altair priced $200 million of five-year convertible notes after the market close on Thursday at par with a coupon of 1.75% and an initial conversion premium of 30%.

Pricing came at the cheap end of talk for a coupon of 1.25% to 1.75% and at the rich end of talk for an initial conversion premium of 25% to 30%.

The new paper sank well-below par with stock under pressure alongside broader markets.

The notes were changing hands at 97.25 versus a stock price of $52.12 in the late afternoon.

However, the notes were flat on swap, a source said.

There was $35 million in reported volume.

The deal was heard to have played to heavy demand during bookbuilding with mostly hedge players involved.

However, the deal had “a lot of moving parts,” with proceeds used to buy back a portion of the company’s 0.25% convertible notes due 2024, a source said.

Altair entered into privately negotiated transactions to repurchase $148.2 million in principal of its 0.25% convertible notes due 2024 for $192.4 million in cash.

The 0.25% notes were active as a result of the buyback with several early prints of the notes at 129.79.

Altair’s stock traded to a low of $51.47 and a high of $53.77 before closing the day at $51.94, a decrease of 5.8%.

ConMed contracts

The strong start of ConMed’s 2.25% convertible notes due 2027 in the secondary space came to a crashing halt with the notes sinking further below par and contracting dollar-neutral on Friday.

The notes fell 2 points outright with stock in the red for the majority of Friday’s session.

They were changing hands at 96.875 versus a stock price of $103.09 in the late afternoon.

The notes continued to come in on a dollar-neutral basis with the notes now contracted on swap from issue, a source said.

There was $15 million in reported volume.

ConMed’s stock traded to a low of $99.73 and briefly entered positive territory in late-day activity to hit as high as $104.92 before closing the day at $102.73, a decrease of 0.48%.

ConMed’s 2.25% convertible notes saw a strong start in the secondary market after the $700 million issue, which was lifted to $800 million following the fully exercised greenshoe, priced at par on June 2.

The notes traded as high as 105 and expanded 2.5 points dollar-neutral on debut.

They are now in the red outright and on swap.

Travel names pressured

Travel names were under particularly heavy pressure following the latest CPI report.

Southwest Airlines’ 1.25% convertibles due 2025 were among the most actively traded issue in the space.

The notes were down almost 3 points outright with stock off 4.5%.

They were changing hands at 127 in the late afternoon.

Southwest Airlines’ stock traded to a high of $42.09 and a low of $39.93 before closing the day at $40.14, a decrease of 4.5%.

While Southwest’s notes were weaker on Friday, “they’re not getting hit over the head,” a source said.

American Airlines’ 6.5% convertible notes due 2025 were another story.

The 6.5% notes were down on an outright and dollar-neutral basis as the airline’s credit spreads blew out, a source said.

The notes fell 3.5 points outright with stock off almost 5%.

They were changing hands at 117 versus a stock price of $14.85 in the late afternoon.

They contracted 1 point dollar-neutral, a source said.

There was $8 million in reported volume.

American Airlines’ stock traded to a high of $15.83 before closing the day at the session low of $14.71, a decrease of 4.91%.

Mentioned in this article:

Altair Engineering Inc. Nasdaq: ALTR

American Airlines Group Inc. Nasdaq: AAL

ConMed Corp. NYSE: CNMD

Southwest Airlines Co. NYSE: LUV

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