Morning Commentary: Confluent, TechTarget on deck; Patrick Industries strong on debut

By Abigail W. Adams

Portland, Me., Dec. 8 – The convertibles primary market proved the year was not yet over with two new deals totaling $1.36 billion slated to price after the market close and one $225 million offering making its aftermarket debut.

Confluent Inc. plans to price $1 billion of five-year convertible notes and TechTarget, Inc. plans to price $360 million in five-year convertible notes after the market close on Wednesday.

The deals looked cheap to fair value with the terms from the software companies remaining aggressive, despite the recent volatility in the market.

Meanwhile, new paper from Patrick Industries Inc. hit the aftermarket and was putting in a strong performance out of the gate.

The flurry of new deal activity was a surprise to some sources given the recent volatility in equity markets.

“But that’s what happens when the market rises 3%,” a source said. “Everyone wants to price a convertible.”

Confluent eyed

Confluent plans to price $1 billion of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 37.5% to 42.5%.

The deal was heard to be in the market with assumptions of 300 basis points over Libor and a 42% vol., a source said.

Using those assumptions, the deal looked 1.5 points cheap at the midpoint of talk, a source said.

The credit spread for the software company was aggressive with Confluent a high-multiple growth stock.

However, the deal is expected to do well with the company’s $18 billion market cap making it “a safer bet than not,” a source said.

TechTarget on tap

TechTarget plans to price $360 million of five-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 32.5% to 37.5%.

The deal was heard to be in the market with assumptions of 350 bps over Libor and a 40% vol., a source said.

The deal was the first in recent history to model rich to fair value. Using underwriters’ assumptions, the deal modeled just shy of par at the midpoint of talk.

However, proceeds from the offering will be used to repurchase or exchange for cash and shares a portion of the company’s 0.125% convertible notes due 2025 in privately negotiated transactions.

The exchange was driving the valuation for the new offering.

Patrick Industries gains

Patrick Industries priced a $225 million offering of seven-year convertible senior notes after the market close on Tuesday at par with a coupon of 1.75% and an initial conversion premium of 30%.

Pricing came at the rich end of talk for a coupon of 1.75% to 2.25% and in the middle of talk for an initial conversion premium of 27.5% to 32.5%.

The new paper was putting in a strong performance out of the gate. It traded up to 102.5 shortly after the opening bell. The notes came in as stock turned negative as the session progressed.

The notes were changing hands at 101.125 about one hour into the session.

They expanded between 1 and 1.5 points on a dollar-neutral, or hedged, basis.

Patrick Industries’ stock was changing hands at $76.25, a decrease of 0.99%, shortly before 11 a.m. ET.

© 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.