Integer convertible notes jump on aftermarket debut; Rapid7 rockets on possible sale

By Abigail W. Adams

Portland, Me., Feb. 1 – The convertibles primary market was dormant on Wednesday but sources do not expect the quiet to last with companies emerging from earnings season blackouts and the January rally in equities seeming to have staying power, especially given the strong response on Fed day.

While the primary market was quiet, it was an active day in the secondary space with new paper from Integer Holdings Corp. making its aftermarket debut, earnings and topical news jumpstarting activity in outstanding issues, and a Fed-induced market rally lifting the overall space.

Equity indexes shook off losses and rocketed higher during Federal Reserve chair Jerome Powell’s press conference with markets reacting strongly to Powell’s acknowledgement that inflation was waning.

After falling more than 225 points leading into the press conference, the Dow Jones industrial average closed Wednesday up 7 points, or 0.02%.

The S&P 500 index closed up 1.05%, the Nasdaq Composite index closed up 2% and the Russell 2000 index finished 1.49% higher.

There was $665 million on the tape about one hour before the market close.

Integer’s new 2.125% convertible notes due 2028 dominated activity in the secondary space with the notes making large outright and dollar-neutral gains.

Peloton Interactive Inc.’s 0% convertible notes due 2026 were lifted in heavy volume after the ailing exercise company posted earnings.

Rapid7 Inc.’s convertible notes made large gains as stock soared on news the company was exploring a sale after receiving takeover interest.

Integer in demand

Integer was the name of the day on Wednesday with its convertible notes offering playing to heavy demand during book building and making large outright and dollar-neutral gains on debut.

Integer priced an upsized $435 million of five-year convertible notes after the market close on Tuesday at par at the rich end of talk with a coupon of 2.125% and an initial conversion premium of 32.5%.

Price talk was for a coupon of 2.125% to 2.625% and an initial conversion premium of 27.5% to 32.5%.

The greenshoe was also upsized to $65 million.

The initial size of the offering was $375 million with a greenshoe of $56.25 million.

The deal played to heavy demand during book building with the offering more than 5x oversubscribed, a source said.

The notes were off to a strong start in the aftermarket with the notes trading up to 104 out of the gate.

They were changing hands at 103.25 versus a stock price of $67.80 a little more than one hour into the session.

The notes continued to trade around 103.25 in the late afternoon as stock turned higher.

The convertibles expanded as much as 2.5 points dollar-neutral early in the session but gave back some gains and were up 1.5 to 2 points dollar-neutral heading into the close, sources said.

There was $174 million in reported volume.

Integer’s stock traded to a low of $67 and a high of $69.44 before closing at $68.95, an increase of 4.77%.

Peloton’s earnings

Peloton’s 0% convertible notes due 2026 were on the rise in heavy volume on Wednesday after the ailing exercise technology company posted earnings.

The 0% notes rose more than 2 points outright.

They traded as high as 81 in intraday activity but were wrapped around 80 heading into the market close, according to a market source.

The heavily busted notes have long traded for their yield, which was about 7.5% on Wednesday.

While the yield did not seem very attractive, market players are eyeing a potential buyback of the notes, which would make them a much more profitable trade, a source said.

There was $30 million in reported volume.

Peloton’s stock soared in response to earnings and closed at $16.36, an increase of 26.53%.

While Peloton reported a large miss on the bottom line with losses per share of 98 cents versus the 64 cents expected, they beat on the top with revenue of $792.7 million versus the $710 million.

Rapid7 for sale

Rapid7 was among the major winners of Wednesday’s session with its convertible notes jumping on an outright and dollar-neutral basis as stock soared on reports the company was exploring a sale.

The 2.25% convertible notes due 2026 were up 5 points outright with stock up more than 30%.

The notes were seen at 104.625 versus a stock price of $49.12 in the late afternoon.

There was $8 million in reported volume.

The 0.25% convertible notes due 2027 jumped 7.5 points outright.

They were trading at 89.75 versus a stock price of $49.08 in the late afternoon.

There was $5 million in reported volume.

The notes expanded upwards of 3 points dollar-neutral, a source said.

Rapid7’s stock traded to a low of $39.73 and a high of $52.88 before closing at $52.32, an increase of 31.23%.

News broke on Wednesday that the cyber-security firm was exploring a potential sale after receiving takeover interest.

Mentioned in this article:

Integer Holdings Corp. NYSE: ITGR

Peloton Interactive Inc. Nasdaq: PTON

Rapid7 Inc. Nasdaq: RPD

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