Akamai, KKR, Prospect Capital on tap; Alteryx, New Relic convertible deals eyed

By Abigail W. Adams

Portland, Me., May 15 – The new convertible deals are coming “fast and furious,” a market source said, with the primary market gearing up to price $2.44 billion in new paper by the end of Wednesday.

In one of the largest deals to date this year, Akamai Technologies Inc. plans to price $1 billion of seven-year convertible notes after the market close on Wednesday with price talk for a coupon of 0% to 0.25% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The deal comes with a call spread, warrant transactions and a share buyback of about $50 million.

Proceeds will be used to repay at maturity the company’s $690 million of outstanding 0% convertible notes due February 2019.

KKR Real Estate Finance Trust Inc. plans to price $125 million of five-year convertible notes prior to the market open on Wednesday with price talk for a coupon of 5.625% to 6.125% and an initial conversion premium of 10% to 15%, according to a market source.

Separately, Prospect Capital Corp. plans to price a $75 million add-on to its 4.95% convertible notes due 2022 prior to the market open on Wednesday, a market source said.

Tuesday began with $600 million of new paper from Twilio Inc. and Vocera Communications, Inc. hitting the market and $635 million of new paper from New Relic Inc. and Alteryx, Inc. set to price after the market close.

While new paper from Twilio and Vocera dominated secondary trading on their market debut, they had mixed results with Twilio seen slightly expanded and Vocera slightly contracted on a dollar-neutral basis.

Reviews of the new deals in the works were also mixed. While New Relic’s offering looks cheap based on the underwriters’ assumptions, Alteryx is “not looking great,” a market source said. Price talk for Alteryx may be revised, a source said.

With $1.835 billion in new paper still to flood the secondary market, the secondary market already had “a little indigestion,” on Tuesday, a market source said.

Five of the seven deals in the pipeline come from the tech sector in a year that has been tech heavy in new issuances. “I didn’t even know there were that many software companies,” one source said.

Another source questioned how many more software deals the market would be able to absorb.

Twilio in demand

Twilio priced an upsized $475 million of five-year convertible notes after the market close on Monday with a coupon of 0.25% and an initial conversion premium of 35%.

Pricing came at the mid-point of talk for a coupon of 0% to 0.5% and at the rich end of talk for an initial conversion premium of 30% to 35%, according to a market source.

The greenshoe was also upsized to $75 million.

The initial size of the deal had been $435 million with a greenshoe of $65 million.

The deal was more than 2 times oversubscribed during the subscription process, a market source said.

The new paper “was trading like crazy,” a market source said early in the session. More than $130 million of the bonds traded by late afternoon, accounting for almost 25% of the total trading volume.

The notes were trading below par with stock down early in the session but turned around as the San Francisco-based cloud communications platform service company’s stock regained its footing.

The notes were seen trading between 100.5 to 101 at mid-morning through the afternoon with its stock up slightly.

With a delta in the mid-60s, the notes were trading in-line to an expanded 0.25 point dollar neutral, a market source said.

Twilio stock closed Tuesday at $53.13, an increase of 1.16%.

Vocera slightly contracted

Vocera Communications priced $125 million of five-year convertible notes after the market close on Monday at the mid-point of talk with a coupon of 1.5% and an initial conversion premium of 32.5%.

Price talk had been for a coupon of 1.25% to 1.75% and an initial conversion premium of 30% to 35%, according to a market source.

The notes were trading below par out of the gate.

The convertibles were seen trading between 99.5 and 99.75 early in the session with the company’s stock down 5 to 10 cents. “Not a great start for them,” a market source said.

However, the notes rose to above par in the afternoon as the San Jose, Calif.-based communications solutions provider’s stock regained its footing.

They were seen trading between par and 100.5 with the stock up. The notes remained contracted between 0.125 to 0.25 point dollar neutral, a market source said.

The notes also saw heavy trading volume on Tuesday with more than $51 million of the bonds in play by late afternoon.

Vocera stock closed Tuesday at $24.52, an increase of 0.74%.

Alteryx ‘not looking great’

Alteryx plans to price $200 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 42.5% to 47.5%.

The deal was being marketed with a credit spread of 275 basis points over Libor and a 45% vol., a market source said. At the mid-point of talk, the deal modeled about 2 points rich, the source said.

“It’s not looking great,” the source said. “There’s a lot of premium there.”

Other sources also said the deal from the Irvine, Calif.-based computer software company looked rich.

Price talk may be revised with the talk either widened or the deal priced at a discount, a market source said.

New Relic

New Relic plans to price $435 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.25% to 0.75% and an initial conversion premium of 25% to 30%, according to a market source.

The deal was being marketed with a credit spread of 225 bps over Libor and a 35% vol., a market source said. At the mid-point of talk, the deal modeled about 1.5 points cheap, a market source said.

“It looks alright,” a market source said.

Mentioned in this article:

Akamai Technologies Inc. Nasdaq: AKAM

Alteryx, Inc. NYSE: AYX

KKR Real Estate Finance Trust Inc. NYSE: KREF

New Relic Inc. NYSE: NEWR

Prospect Capital Corp. Nasdaq: PSEC

Twilio Inc. NYSE: TWLO

Vocera Communications, Inc. NYSE: VCRA

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