Convertibles market opens slowly, picks up in afternoon; Q2, Okta active; biotechs improve

By Abigail W. Adams

Portland, Me., Feb. 26 – The convertibles market was typically quiet on Monday morning with not much on the tape before picking up later in the session.

“It’s been very quiet overall. There’s nothing meaningfully different,” a market source said early in the day. There was less than $100 million on the tape with most names trading in line dollar neutral, the source said.

Intel Corp.’s 3.25% convertible notes due 2039, a mainstay of the convertibles space, were seen up about 0.125 point dollar neutral, the source said. The notes, which move on a 100% delta, were trading around 233 with stock at $48.25, an increase of 1.09%.

In scattered trades early in the session, Wayfair Inc.’s 0.375% convertible notes due 2022 continued to trade below par early Monday after the convertible notes dropped more than 13 points on Thursday when the e-commerce company released its fourth-quarter and year-end results.

The notes were trading at 99.625 versus a stock price of $73.00, a decrease of 3.33% early in the session. Prior to Feb. 22, the notes traded as high as 116, according to Trace data.

While the morning was quiet, activity was seen picking up in the afternoon with new paper from last week’s deals and biotech names active on the tape, a market source said.

Okta Inc.’s 0.25% convertible notes due 2023 remained in focus their second day in the market with the notes up about 0.25 point dollar neutral, a market source said.

Q2 Holdings Inc.’s newly priced 0.75% convertible notes due 2023 also continued to see some action on Monday with the notes trading north of 103 and the stock up about 1.5%.

Unlike several of the deals that priced in recent weeks, the new deals from Okta and Q2 Holdings both expanded on debut. While no new deals were announced on Monday, the primary market is expected to be active and bring new paper to the market this week with equity markets once again stable.

Exact Sciences Corp.’s 1% convertible notes due 2025 continued to see action on Monday after a flurry of trading activity on Friday. The convertible notes dropped about 3 points on Friday after the biotech company released its fourth-quarter and year-end reports but were largely in-line delta neutral, a market source said.

The notes were up about 3 points on an outright basis on Monday.

On the eve of Alder Biopharmaceuticals Inc.’s fourth-quarter and year-end earnings report, Alder’s struggling 2.5% convertible notes due 2025 broke par in scattered trades on Monday. The 2.5% notes hit the market on Jan. 30, one of the worst days for equities in recent history and have largely traded in the 97 to 98 range since their debut.

Last week’s deals

Okta’s 0.25% convertible notes due 2023 remained in focus their second day in the market with the notes up about 0.25 point dollar neutral, a market source said.

The new paper, which moves on a 60% delta, was seen at 103.75 bid, 104.25 offered with stock up about 4.5% mid-afternoon Monday.

The San Francisco-based enterprise identity provider priced $300 million of the five-year convertible notes with a coupon of 0.25% and an initial conversion premium of 35% after the market close on Feb. 22.

Pricing came at the rich end of talk for a coupon of 0.25% to 0.75% and richer than talk for an initial conversion premium of 27.5% to 32.5%.

The deal was sought after in the subscription process by both long-only and hedge accounts, a market source said.

Q2 Holdings’ 0.75% convertible notes due 2023 continued to see activity their third day in the market with the notes solidifying around 103 in the afternoon. Q2 stock closed the day at $46.85, an increase of 1.74%.

The Austin, Texas-based provider of cloud-based digital banking services priced $200 million of five-year convertible notes with a coupon of 0.75% and an initial conversion premium of 27.5% prior to the market open on Feb. 22.

The notes priced at the rich end of talk for a coupon of 0.75% to 1.25% and an initial conversion premium of 22.5% to 27.5%.

Much like Okta, the deal was also oversubscribed during the subscription process and sought after by both long-only and hedge accounts. “It’s the year for software,” a market source said. “Everyone wants to get into it.”

Biotech gets better

The struggling convertible notes from Exact Sciences and Alder BioPharmaceuticals showed signs of improvement on Monday, which was a strong day in equities for biotech names.

Exact Sciences’ 1% convertible notes due 2025 dropped 3 points on an outright basis on Friday after releasing fourth-quarter and year-end reports but were trading in-line dollar neutral, a market source said.

The notes from the Madison, Wis.-based molecular diagnostics company gained 3 points on an outright basis to return to the 91 range on Monday.

Exact Sciences stock closed Monday at $42.56, an increase of 0.45%.

“Their credit is better than people think,” a market source said. However, the seven years until maturity is a pitfall for the notes.

The 1% convertible notes have struggled since mid-January when a Taiwan-based competitor released positive clinical results for a rival to Exact Sciences’ only product in the market.

Alder’s embattled 2.5% notes also got a boost on Monday. The notes broke par in scattered trades as its stock closed the day flat at $14.75. The Bothell, Wash.-based pharmaceutical development company is scheduled to release its fourth-quarter and year-end earnings reports after the market close.

Alder’s recently priced notes hit the secondary market on Jan. 30, one of the worst days for equities in recent history. The notes contracted on debut and traded as low as 94 on an outright basis in mid-February. The notes were trading in the 97 to 99 range late last week.

Mentioned in this article:

Alder Biopharmaceuticals Inc. Nasdaq: ALDR

Exact Sciences Corp. Nasdaq: EXAS

Intel Corp. Nasdaq: INTC

Okta Inc. Nasdaq: OKTA

Q2 Holdings Inc. NYSE: QTWO

Wayfair Inc. NYSE: W

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