Morning Commentary: Convertibles primary prices $1.85 billion; Fortive, Momo hit the market

By Abigail W. Adams

Portland, Me., June 27 – The convertibles space opened Wednesday with $1.85 billion in new paper, which dominated trading activity in the secondary space.

Fortive Corp. priced an upsized $1.2 billion, or 1.2 million shares, of series A mandatory convertible preferred stock after the market close on Tuesday.

The deal was heavily oversubscribed and attracted both mandatory convertible and common stock buyers, a market source said.

Momo Inc. priced $650 million of seven-year convertible notes prior to the market open on Wednesday. The notes were up early in the session but dropped below par with the stock down, sources said.

Fortive’s deal

Fortive priced an upsized $1.2 billion, or 1.2 million shares, of series A mandatory convertible preferred stock after the market close on Tuesday at the rich end of talk with a dividend of 5% and an initial conversion premium of 22.5%.

Price talk had been for a dividend of 5% to 5.5% and an initial conversion premium of 17.5% to 22.5%, according to a market source.

The greenshoe was upsized to $180 million, or 180,000 shares. The initial size of the deal had been $1 billion with a greenshoe of $150 million.

The deal was “strongly oversubscribed,” a market source said. Buyers included investors with positions in the common stock and mandatory convertible players, the source said.

The preferred stock was seen between 100 and 100.5 in high-volume trading early in the session, a market source said.

It was seen a short time later at 100.88 bid versus a common stock price of $75.75.

The preferred stock was expanding about 0.375 point on a dollar-neutral, or hedged, basis, a source said.

Momo’s deal

Momo priced $650 million of seven-year convertible notes prior to the market open on Wednesday at the midpoint of talk with a coupon of 1.25% and an initial conversion premium of 42.5%.

Price talk had been for a coupon of 1% to 1.5% and an initial conversion premium of 40% to 45%, according to a market source.

The notes traded as high as 101 out of the gate with stock spiking prior to the market open, a market source said. However, the notes traded down to 99.5 with the stock down 1%.

The notes were moving on a 60% delta and were trading in line on a dollar-neutral basis, a market source said.

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