Pegasystems upsizes, expands on debut; Zillow mixed post-earnings; NextEra active

By Abigail W. Adams

Portland, Me., Feb. 20 – New convertibles paper was in focus in the secondary space on Thursday as Pegasystems Inc.’s upsized offering made its aftermarket debut.

Pegasystems’ 0.75% convertible notes due 2025 dominated trading activity and saw a large dollar-neutral expansion.

NextEra Energy Inc.’s 5.279% equity units also remained active with the units continuing to trade around their reoffer price.

Outside of the new paper, Zillow Inc.’s convertible bonds were active as stock soared following a fourth-quarter earnings beat.

While some tranches were expanding on the stock move, others were contracting, a market source said.

Pegasystems expands

Pegasystems priced an upsized $525 million of five-year convertible notes after the market close on Wednesday at par with a coupon of 0.75% and an initial conversion premium of 37.5%.

Pricing came at the rich end of revised price talk for a coupon of 0.75% to 1% and in line with an initial conversion premium of 37.5%, according to a market source.

Talk had tightened during bookbuilding from the initial talk for a coupon of 0.75% to 1.25% and an initial conversion premium of 32.5% to 37.5%.

The greenshoe was also upsized to $75 million.

The initial size of the deal was $450 million with a greenshoe of $67.5 million.

The new paper dominated activity in the secondary space and saw a large dollar-neutral expansion – a common theme among the convertible bond deals to price in the past two weeks.

The 0.75% convertible notes due 2025 traded up to 104 out of the gate – a level it held into the late afternoon.

They were expanded about 2.5 points dollar-neutral, a market source said.

“This was very well received,” the source said.

“It was a really strong deal,” another source said.

The notes saw more than $168 million in reported volume by the late afternoon.

Pegasystems stock traded to a low of $99.50 and a high of $103.13 before closing Thursday at $101.85, an increase of 3.70%.

While the deal modeled out to about fair value at the midpoint of revised price talk, the market is hungry for new paper, sources said.

Demand more than pricing has driven the performance of recent convertible bond deals, a source said.

i3 Verticals LLC’s recently priced 1% convertible notes due 2025 saw a 3.5 point expansion on their market debut Feb. 13.

Revance Therapeutics Inc.’s 1.75% convertible notes due 2027 also expanded more than 3 points on their market debut Feb. 12.

Collegium Pharmaceutical Inc.’s 2.625% convertible notes due 2026 gained 4 points dollar-neutral on their market debut Feb. 11.

NextEra active

NextEra’s 5.279% equity units remained active on their second day in the secondary space.

However, the units continued to trade around issue price, a source said.

The $50-par units, which priced at $48.75 prior to the market open on Wednesday, remained range bound around $48.60, a source said.

They were coming close to clearing their issue price heading into the market close, another source said.

The units have largely traded around their issue price since hitting the secondary space, which sources attributed to the $2.5 billion size of the offering.

NextEra stock closed Thursday at $277.03, an increase of 0.88%.

Zillow mixed

Zillow’s convertible bonds also saw high-volume activity on Thursday as stock soared following a fourth-quarter earnings beat.

While some tranches were expanding on the stock move, others were contracting, a market source said.

Zillow’s 1.5% convertible notes due 2023 rose more than 7 points to 111.375 heading into Thursday’s close.

The notes expanded about 0.5 point dollar-neutral, a market source said.

The bonds saw $9 million in reported volume heading into the market close.

The 1.5% notes move on a lower delta and have more room to run than Zillow’s other tranches of convertible notes, a source said.

Zillow’s 0.75% convertible notes due 2024 gained almost 19 points outright to trade up to 157.75 by the late afternoon.

The 0.75% notes were the most active of the tranches with $24 million in reported volume.

The 1.375% convertible notes due 2026 also gained about 19 points to trade up to 160 with $16 million in reported volume.

The 2% convertible notes due 2021 rose 9 points to 130.875 with more than $15 million in reported volume.

However, the high dollar tranches were contracting due to pressure from outright accounts selling, a market source said.

Zillow stock traded to a low of $61.93 and a high of $66.68 before closing the day at $63.63, an increase of 16.82%.

Stock skyrocketed after Zillow beat analyst expectations on the top and bottom lines in its fourth-quarter earnings report and gave upbeat guidance.

The online real estate database company reported a loss per share of 26 cents versus analyst expectations for a loss per share of 36 cents.

Revenue was $943.95 million versus analyst expectations for revenue of $814.6 million.

Mentioned in this article:

NextEra Energy Inc. NYSE: NEE

Pegasystems Inc. Nasdaq: PEGA

Zillow Inc. Nasdaq: Z

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