Market awaits Q2 deal; Okta on tap; Extra Space trades on earnings; Aegean tanks, GNC rallies

By Abigail W. Adams

Portland, Me., Feb. 21 – The volatility in the equity markets and earnings season has not stopped the convertible bond primary market from bringing new deals forward this week.

Okta Inc. announced plans on Wednesday to price $300 million of five-year convertible notes. The notes are expected to price after the market close on Thursday. Price talk is for a coupon of 0.25% to 0.75% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

Goldman Sachs & Co., Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC are the bookrunners for the Rule 144A deal, which carries a greenshoe of $45 million. The notes are non-callable, and there are no investor puts.

The San Francisco-based enterprise identity provider had been called a tech unicorn that went public in April 2017 with a share price of $17.00. Okta stock closed Wednesday at $35.33.

Q2 Holdings, Inc.’s $200 million offering of five-year convertible notes is expected to price after the market close on Wednesday.

Price talk is for a coupon of 0.75% to 1.25% and an initial conversion premium of 22.5% to 27.5%, according to a market source. Some did not find the deal attractive.

Meanwhile, the secondary market saw another day of light trading volume.

Extra Space Storage LP’s 3.125% convertible notes due 2035 were active early in Wednesday’s session after the Salt Lake City-based operator of self-storage facilities reported fourth-quarter and year-end results after the market close Tuesday.

Trading activity tempered in the afternoon with the notes up about 2 points on an outright basis to 108.

Aegean Marine Petroleum Network Inc.’s 4.25% convertible notes due 2021 tanked in scattered trades on Wednesday, dropping to the low 60s after the company announced preliminary fourth-quarter results after the market close Tuesday.

Aegean also announced a definitive agreement to acquire the outstanding shares of H.E.C. Europe Ltd., the parent company for a group of companies that provide port reception facilities services.

GNC Holdings Inc.’s 1.5% convertible notes due 2020 continued to trade in the 71 range in scattered activity on Wednesday. The 1.5% notes were trading in the mid-50s throughout January but traded up to the 70 to 72 range on Feb. 14.

“They’re trying to bail themselves out,” a market source said.

Q2’s deal

Q2 Holdings will price the first new deal of the week after the market close Wednesday. However, sources did not find the deal very attractive.

Underwriters are marketing the $200 million deal with a credit spread of 300 basis points over Libor and a 30% volatility, a market source said.

“The credit seems too tight and the volatility assumption too high for an unknown convert name,” the source said.

Another source also remarked that the credit seemed tight.

The Austin, Texas-based provider of cloud-based digital banking services is a first-time issuer of convertible notes.

Extra Space’s earnings

Extra Space Storage’s 3.125% convertible notes due 2035 climbed about 2 points in active trading early in Wednesday’s session, as underlying equity was up about 3%.

The 3.125% convertible notes traded to a high of 109 but solidified north of 108 with most trading activity occurring early. Extra Space stock was unable to hold onto its early gains and closed Wednesday at $81.5, an increase 0.93%.

The notes ended 2017 in the 110 to 111 range but have slowly traded down for much of the year and were in the 105 range last week.

Extra Space Storage reported adjusted earnings per share of $1.12 for the fourth quarter and adjusted earnings per share of $4.38 for 2017. The earnings per share consensus estimate was $1.08 for the fourth quarter.

Aegean plummets

Aegean Marine’s 4.25% convertible notes due 2021 tumbled about 10 points on an outright basis after the international marine fuel logistics company announced preliminary fourth-quarter results.

The 4.25% notes traded to a high of 65.69 and a low of 60.375 before ending the day at 62.25, according to Trace data. The notes were trading in the 70s on Tuesday.

Aegean Marine’s 4% convertible notes due 2018 also dropped about 6 points on an outright basis in scattered trades. The notes, which mature in November, closed the day at 92.25.

Aegean stock also tanked on Wednesday closing the day at $2.75, a decrease of 38.2%.

After the market close on Tuesday, Aegean announced an anticipated net loss of $28.2 million, or 69 cents per share, in the fourth quarter. Aegean also announced that it had entered into a definitive agreement to acquire H.E.C. Europe Ltd. for $367 million, according to a company news release.

H.E.C. Europe is the parent company of Hellenic Environmental Center SA and a group of companies that provide port reception facilities services. The companies were owned and controlled by Dimitris Melisanidis, the founder of Aegean.

GNC’s rally

GNC’s embattled 1.5% convertible notes due 2020 maintained the gains it made last week with scattered trades at 71 during Wednesday’s session. GNC stock was down to $4.20, a decrease of 0.24%, at the market close Wednesday.

The 1.5% notes, which had been in the low to mid 50s for much of January, climbed about 20 points on an outright basis on Feb. 14 after the company reported fourth-quarter and year-end results and a $300 million investment from Harbin Pharmaceutical, a Harbin, China-based state-owned pharmaceutical company.

GNC reported adjusted earnings per share of 25 cents in the fourth quarter compared to 7 cents in the fourth quarter of 2016. The $300 million investment makes Harbin Pharmaceuticals GNC’s largest shareholder.

The two companies intend to launch a joint venture to distribute GNC-branded products in China.

Mentioned in this article:

Aegean Marine Petroleum Network Inc. NYSE: ANW

Extra Space Storage LP NYSE: EXR

Okta Inc. Nasdaq: OKTA

Q2 Holdings Inc. NYSE: QTWO

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