Morning Commentary: Fortive offers $1.25 billion convertibles; Western Digital active

By Abigail W. Adams

Portland, Me., Feb. 19 – Tuesday opened with the primary market launching the largest convertible offering of the year.

Fortive Corp. plans to price $1.25 billion of three-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.875% to 1.375% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

Underwriters are marketing the deal with a credit spread of 80 basis points over Libor and a 23% vol., market sources said.

Using those assumptions, the deal modeled out to fair value, a market source said. However, one source felt the underwriters were being aggressive on the vol.

Using more conservative assumptions of 100 bps over Libor and a 20% vol., the deal modeled about 1.5 points rich, a market source said.

However, Fortive is investment grade and will do well based on its rating, a source said. The short three-year duration of the notes is also a huge benefit to the deal, a source said.

“Those are some big pluses,” the source said.

Meanwhile, the secondary space was off to a slow start in the return from the extended Presidents Day weekend.

There was about $72 million on the tape a little over one hour into Tuesday’s session.

Western Digital Corp.’s 1.5% convertible notes due 2024 were again the major volume movers in the secondary space with more than $13 million on the tape a little over one hour into Tuesday’s session.

The notes were changing hands at 88, a market source said.

Western Digital stock was up to $48.21, an increase of 1.18%, shortly before 11 a.m. ET.

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