Altair convertible deal a ‘blowout’; SoFi active; Expedia down; Avaya up on refinancing

By Abigail W. Adams

Portland, Me., June 9 – The convertibles primary market again reared its head with an overnight refinancing deal on a red day for equity markets.

Altair Engineering Inc. plans to price $200 million of five-year convertible notes after the market close on Thursday.

While the deal looked to be about fair value based on underwriters’ assumptions, the deal played to heavy demand, sources said.

Meanwhile, a quiet morning in the secondary space again gave way to an active session on a heavy day for equity markets.

Indexes wavered between gains and losses early in the session before sinking deep into the red.

The Dow Jones industrial average closed down 638 points, or 1.94%, the S&P 500 index closed down 2.38%, the Nasdaq Composite index closed down 2.75% and the Russell 2000 index closed down 2.12%.

There was $67 million of convertibles trading on the tape about one hour into the session and $509 million in reported volume about one hour before the market close.

SoFi Technologies Inc.’s 0% convertible notes due 2026 were active although with little movement in price following reports that insiders had been purchasing the company’s stock.

Expedia Inc.’s 0% convertibles due 2026 (Baa3/BBB-/BBB-) continued to see heavy selling as the notes exit the Refinitiv indexes.

Avaya Holdings Corp.’s 2.25% convertibles due June 15, 2023 made large gains during Thursday’s session as market chatter about a refinancing materialized.

Altair a ‘blowout’

Altair plans to price $200 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 1.25% to 1.75% and an initial conversion premium of 25% to 30%.

The deal was heard to be in the market with assumptions of 350 basis points over Libor and a 33% vol., according to a market source.

Using those assumptions, the deal looked 0.19 point cheap at the midpoint of talk.

The deal modeled the closest to fair value of any of the recent deals to clear the primary market.

However, it was heard to be playing to heavy demand.

“It will be a blowout deal,” a source said.

Altair’s offering is the latest refinancing deal to price, and proceeds will be used to repurchase a portion of the artificial intelligence software company’s 0.25% convertible notes due 2024.

There are $230 million of the 0.25% notes outstanding with the last round lot trade at 127.375 on Monday, according to Trace data.

The majority of deals to price since the primary market revived activity have been refinancing deals from well-known convertibles issuers.

While the deal terms have become optically more attractive, it will take a large cap company previously unknown to the convertibles universe to spark a true repricing of the secondary market, sources have said.

The refinancing deals to price thus far are “just financial engineering,” a source said.

SoFi active

SoFi’s 0% convertible notes due 2026 saw heavy volume during Thursday’s session although with little movement in price.

The 0% notes continued to trade on a 69-handle.

They were changing hands at 69.25 in the late afternoon with a yield of 8.8%, according to a market source.

There was $15 million in reported volume.

The long-busted convertible notes are not equity sensitive.

However, the company’s stock was suffering losses alongside the broader market.

Stock closed Thursday at $6.11, a decrease of 8.26%.

There has been heavy insider buying of the fintech company’s stock, which may have sparked interest in the convertible notes, a source said.

SoFi is also asking shareholders to approve an amendment that will allow the board the discretion to pursue a reverse stock split at their July 12 meeting.

Expedia weaker

Expedia’s 0% convertibles due 2026 continued to see heavy selling as the notes exit Refinitiv indexes.

The 0% notes traded down to a 97-handle on Thursday, their lowest level since the $1 billion issue priced in February 2021.

The notes were changing hands at 97.25 versus a stock price of $123 in the late afternoon.

There was $14 million in reported volume.

Expedia’s stock traded to a high of $129.70 before closing the day at the session low of $121.99, a decrease of 5.78%.

Expedia’s 0% convertible notes were hovering around par on Monday.

However, they have seen heavy selling throughout the week with the convertible notes dropped from the Refinitiv indexes on Wednesday.

There tends to be heavy selling and buying around index additions and subtractions, a source said.

Avaya’s refinancing

Avaya’s 2.25% convertibles due June 15, 2023 made large gains on Thursday after the company launched a new first-lien term loan with proceeds to be used to refinance the notes.

The 2.25% notes jumped more than 4 points outright.

They were changing hands at 94.25 in the late afternoon with a yield of 8.329%.

There was $10 million in reported volume.

The long-busted convertible notes are not equity sensitive and have been trading based on investor sentiment about the ability of the company to pay off the debt at their fast-approaching maturity, sources said.

The notes tanked in mid- to late May following a disastrous earnings report as investors questioned the ability of the company to pay off the debts.

However, after bottoming out at 77 in late May, the notes have been on a strong uptrend with chatter about a potential refinancing propelling the notes higher.

The market chatter about a refinancing materialized on Thursday with the company launching a $500 million first-lien term loan with proceeds to be used to prefund the refinancing of the convertible notes.

Price talk for the first-lien term loan due December 2027 is SOFR plus 900 basis points with a 1% floor and an original issue discount of 96, Prospect News reported.

Mentioned in this article:

Altair Engineering Inc. Nasdaq: ALTR

Avaya Holdings Corp. NYSE: AVYA

Expedia Inc. Nasdaq: EXPE

SoFi Technologies Inc. Nasdaq: SOFI

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