Tetra Tech convertible offering eyed; Hannon Armstrong tumbles; Workiva, Envista sink

By Abigail W. Adams

Portland, Me., Aug. 17 – The convertibles primary market continued to churn out offerings with Tetra Tech Inc. set to price $500 million of five-year convertible notes after the market close.

The deal modeled cheaper than some of the offerings that have cleared the primary market over the past two weeks.

However, the cheapness of the deal varied dramatically based on the assumptions used.

With equities no longer providing a supportive backdrop and several recent deals with tight pricing performing poorly in the aftermarket, the primary market may no longer be able to wield the same pricing power it did as recently as last week, sources said.

Equity indexes continued to see selling pressure on Thursday with the European Central Bank’s rate increase and a decrease in unemployment claims further casting doubt over market expectations that the Fed had ceased its rate hike campaign.

The Dow Jones industrial average closed Thursday down 291 points, or 0.84%, the S&P 500 index closed down 0.77%, the Nasdaq Composite index closed down 1.17% and the Russell 2000 index closed down 1.10%.

There was $474 million in reported volume about one hour before the market close with recent paper driving trading activity.

Several recent deals hit fresh outright lows with Workiva Inc.’s 1.25% convertible notes due 2028 and Envista Holdings Corp.’s 1.75% convertible notes due 2028 (Baa3) trading down to a 96-handle.

Hannon Armstrong Sustainable Infrastructure Capital Inc.’s 3.75% exchangeable notes due 2028 (Baa3) tumbled to a 95-handle after closing the previous session above par with stock sinking to a 52-week low.

Akamai Technologies Inc.’s 1.125% convertible notes due 2029 were also under pressure their second day in the secondary space with the notes falling further below par.

Tetra Tech eyed

Tetra Tech plans to price $500 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 2.125% to 2.625% and an initial conversion premium of 22.5% to 27.5%.

The deal was heard to be in the market with assumptions of 200 basis points over SOFR and 28% vol., according to a market source.

Using those assumptions, the deal looked about 2.9 points cheap at the midpoint of talk.

However, some sources pegged assumptions as 225 bps over SOFR and a 27% vol.

Those assumptions dramatically altered the cheapness of the deal, which modeled about 1 point cheap at the midpoint of talk.

The wider credit spread made little difference but a 1% decrease in vol. tightened the pricing by almost 2 points.

“That will happen with low vol. names,” a source said.

Tetra Tech’s pricing using underwriters’ assumptions looked more attractive than Akamai’s and Workiva’s convertible notes offerings with Tetra Tech coming with a larger coupon.

Both Akamai’s and Workiva’s convertible notes carried coupons on a 1% handle and modeled about 1 point cheap.

The tight pricing contributed to their poor performance in the aftermarket with both notes trading below par and contracting dollar-neutral, a source said.

While activity surrounding Akamai’s 1.125% convertible notes due 2029 slowed on Thursday, the notes fell further below par.

The tight pricing of recent convertible deals was getting some pushback given the current rate environment and the lack of upside with the turnover in equities.

“These need to start coming cheaper,” a source said.

Poor performance

The rush of issuance over the past two weeks did not provide the lucrative opportunities that market players had hoped for with many struggling in the aftermarket.

Envista’s 1.75% convertible notes due 2028 sank to a fresh outright low and contracted dollar-neutral under Thursday’s heavy market conditions.

The 1.75% convertible notes were off 1.25 points outright with stock down about 2%.

They were changing hands at 96.873 versus a stock price of $32.28 in the late afternoon, according to a market source.

The notes saw the heaviest volume of the session with $43 million on the tape.

Envista’s stock traded to a low of $32.10 and a high of $33.28 before closing at $32.30, off 1.37%.

Envista’s convertible notes offering was among the first to come after the July draught with heavy demand tightening terms.

However, the notes have struggled since their initial day in the aftermarket with sources noting they may have pushed terms too far.

Workiva’s 1.25% convertible notes due 2028 hit a fresh low with the notes tumbling to a 96-handle.

The 1.25% notes were changing hands at 96.875 versus a stock price of $97.28 in the late afternoon.

There was $18 million in reported volume.

Workiva’s stock traded to a low of $96.64 and a high of $98.71 before closing the day at $97.25, a decrease of 0.33%.

Hannon Armstrong’s 3.75% convertible notes due 2028 tumbled as stock hit a new 52-week low on Thursday.

The 3.75% notes were down 7 points outright with stock off 13%.

The notes were seen at 95.25 versus a stock price of $20.97 in the late afternoon.

There was $13 million in reported volume.

Hannon Armstrong’s stock traded to a high of $23.24 and a 52-week low of $19.85 before closing at $20.16, a decrease of 13.06%.

While Hannon Armstrong’s notes were weak on their aftermarket debut, they gained steam and were trading around 102 heading into Thursday’s session.

There was no clear cause for the heavy selling in the company’s stock.

Akamai’s 1.125% convertible notes due 2029 were also under pressure their second day in the secondary space.

The 1.125% notes were changing hands at 99.375 versus a stock price of $101.83 early in the session, according to a market source.

They continued to move lower as the session progressed and were marked at 98.5 versus a stock price of $100.41 in the late afternoon.

There was $16 million in reported volume.

Akamai’s stock traded to a low of $99.75 and a high of $102.03 before closing at $100.21, down 1.45%.

The notes were flat on an outright and dollar-neutral basis on their aftermarket debut on Wednesday.

Mentioned in this article:

Akamai Technologies Inc. Nasdaq: AKAM

Envista Holdings Corp. NYSE: NVST

Hannon Armstrong Sustainable Infrastructure Capital Inc. NYSE: HASI

Tetra Tech Inc. Nasdaq: TTEK

Workiva Inc. NYSE: WK

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