Splunk convertibles eyed; Livongo, HubSpot notes hit aftermarket, expand on debut

By Abigail W. Adams

Portland, Me., June 2 – The convertibles primary market slowed its pace on Tuesday with no deals launching and only one deal set to price after the market close.

Splunk Inc. plans to price $900 million of seven-year convertible notes after the market close on Tuesday.

The software company is a well-known name in the convertibles universe, and the deal is expected to do well.

The pipeline for new deals is “drying up a bit,” a source said, with the pace expected to continue to slow in the coming weeks.

Meanwhile, new paper from HubSpot Inc. and Livongo Health Inc. hit the aftermarket on Tuesday.

The new notes dominated activity in the secondary space and were making large gains on an outright and dollar-neutral basis.

While new paper was in focus, the overall market remained firm on Tuesday with equities continuing to post gains despite the civil unrest spreading through the country.

Splunk in focus

Splunk plans to price $900 million of seven-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 32.5% to 37.5%.

The deal was heard to be in the market with assumptions of 425 basis points over Libor and a 40% vol.

Using those assumptions, the deal modeled about 4.5 points cheap at the midpoint of talk, sources said.

The software company is a well-known name in the convertibles universe and a large cap company with a market cap of more than $30 billion, a source said.

With proceeds to be used to repurchase its outstanding notes, the deal is expected to do well.

Splunk intends to repurchase for cash $500 million of the principal amount of its 0.5% convertible notes due 2023.

The 0.5% notes were active on Tuesday and were changing hands at 140.875 about one hour into the session.

The 0.5% notes were changing hands at 139.25 in the late afternoon as stock traded off its highs.

Splunk stock traded to a high of $192.22 and a low of $185.17 before closing the day at $188.54, an increase of 1.06%.

Splunk priced a $1.265 billion tranche of the 0.5% notes due 2023 as part of a two-tranche offering that also included an $862.5 million tranche of 1.125% notes due 2025 in September 2018.

HubSpot gains

HubSpot priced $400 million of five-year convertible notes after the market close on Monday at par at the midpoint of talk with a coupon of 0.375% and an initial conversion premium of 32.5%.

Price talk was for a coupon of 0.125% to 0.625% and an initial conversion premium of 30% to 35%, according to a market source.

The company also entered into privately negotiated transactions to exchange $272.1 million of the principal amount of its 0.25% convertible notes due 2022 for $283 million in cash and 1.6 million shares.

HubSpot paid up 4 points for the 0.25% convertible notes, a source said.

“People were glad to sell them back to the company,” the source said.

HubSpot’s new paper was performing well in the secondary space.

The 0.375% notes traded up to 105.5 with stock up about 2% early in the session. It dropped down to a 103-handle as stock entered negative territory as the session progressed.

The 0.375% notes were expanded about 3.5 points dollar-neutral, a source said.

HubSpot stock traded to a high of $218.38 and a low of $207.51 before closing the day at $211.91, a decrease of 0.61%.

Livongo Health expands

Livongo Health priced an upsized $475 million of five-year convertible notes after the market close on Monday at par with a coupon of 0.875% and an initial conversion premium of 27.5%.

Pricing came toward the rich end of talk for a coupon of 0.75% to 1.25% and at the midpoint of talk for an initial conversion premium of 25% to 30%.

The greenshoe was also upsized to $75 million.

The initial size of the offering was $400 million with a greenshoe of $60 million.

The new paper was also posting gains on an outright and dollar-neutral basis in the aftermarket.

The 0.875% notes traded up to 102.875 with stock down more than 1.5% early Tuesday.

The notes traded up to 103 as the session progressed and were expanded about 3.5 points dollar-neutral, a source said.

Livongo stock traded to a high of $59.00 and a low of $57.16 before closing the day at $58.33, a decrease of 1.59%.

Some sources were surprised at how well the notes were performing in the aftermarket, given the relative richness of the deal.

The deal was marketed with assumptions of 600 bps over Libor and a 40% vol., which looked about 2.625 points cheap at the midpoint of talk, sources said.

While cheap, the deal was not as cheap as some other names from the sector to tap the market recently.

Mentioned in this article:

HubSpot Inc. NYSE: HUBS

Livongo Health Inc. Nasdaq: LVGO

Splunk Inc. Nasdaq: SPLK

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.