Applied Optoelectronics convertibles on tap; LivePerson eyed; Danaher issue in demand

By Abigail W. Adams

Portland, Me., Feb. 27 – The convertibles primary market stood poised for its highest volume week of new deal activity in 2019 with $1.68 billion of new paper pricing, a $150 million deal set to price after the market close and a $70 million deal on deck for Thursday.

Applied Optoelectronics Inc. plans to price $70 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 4.75% to 5.25% and an initial conversion premium of 25% to 30%, according to a market source.

Raymond James & Associates and Cowen and Co. LLC are joint bookrunners for the Rule 144A deal, which carries a greenshoe of $7 million.

LivePerson, Inc. plans to price $150 million of five-year convertible notes after the market close on Wednesday. The deal looked cheap, sources said.

Danaher Corp. priced an upsized $1.5 billion of par of $1,000 three-year series A mandatory convertible preferred stock after the market close on Tuesday.

There was massive demand for the deal during the subscription process.

Prospect Capital Corp. priced $175 million of six-year convertible notes prior to the market open on Wednesday.

The new notes were largely wrapped around their issue price in secondary trading.

Prospect Capital’s 4.75% convertible notes due 2020 were also active with the company buying the notes back with proceeds from the new offering.

Outside of the new paper, Palo Alto Networks Inc.’s 0.75% convertible notes due 2023 were making gains on an outright and dollar-neutral basis as stock soared after a large earnings beat.

LivePerson eyed

LivePerson plans to sell $150 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 0.625% to 1.125% and an initial conversion premium of 30% to 35%, according to a market source.

The deal was heard to be in the market with assumptions of 300 bps over Libor and a 40% vol., according to a market source.

Using those assumptions, the deal modeled a little more than 3 points cheap at the midpoint of talk, the source said.

Other sources also pegged the deal from the tech company as cheap.

Danaher sees big demand

Danaher priced an upsized $1.5 billion of par of $1,000 three-year series A mandatory convertible preferred stock after the market close on Tuesday with a dividend of 4.75% and an initial conversion premium of 22.5%.

Pricing came richer than initial price talk for a dividend of 5.25% to 5.75% and at the rich end of talk for an initial conversion premium of 17.5% to 22.5%, according to a market source.

The greenshoe was also upsized to $150 million.

The initial size of the deal was $1.35 billion with a greenshoe of $135 million.

“Everyone loves the name,” a market source said.

There was massive demand for the new mandatory convertible preferreds with the books for the deal reaching $7.5 billion, a market source said.

The deal broke some critical barriers and priced with the lowest dividend on a mandatory convertible preferred deal in nine years, the source said.

The deal was sought after by outright accounts, which composed almost 50% of demand. However, there was a good mix of investors that were interested in the deal, including hedge players and equity income funds.

With several hedge accounts also holders of the common stock, the interest in the mandatory convertible preferreds was more another way to play the common stock as opposed to engaging in hedging activity with the preferreds.

The 4.75% mandatory convertible preferreds were the “name du jour” in the secondary space, a market source said.

However, with the mandatory convertible preferreds upsized and priced richer than talk, they were lagging on a dollar-neutral basis.

The notes traded up outright. They were seen at 101 early in the session and were trading around 101.625 later in the afternoon, sources said.

Stock was driving the outright levels of the preferreds.

However, the new paper was lagging on a dollar-neutral basis and were contracted about 0.25 point, a market source said.

Danaher stock traded as high as $127.53 but closed the day at $126.39, an increase of 2.58%.

The mandatory convertible preferreds priced concurrently with a $1.35 billion, or 11 million share, common stock offering, which priced at $123.00 per share.

Prospect Capital prices

Prospect Capital priced an upsized $175 million of six-year convertible notes prior to the market open on Wednesday at 98 with a coupon of 6.375% to yield 6.89% and an initial conversion premium of 30.68%.

Price talk had been for a reoffer price of 98, a coupon of 6.25% to 6.375% for a yield of 6.76% to 6.89% and an initial conversion premium of 30.68%, according to a market source.

The greenshoe was also upsized to $26.25 million.

The initial size of the deal was $150 million with a greenshoe of $22.5 million.

The deal looked incredibly cheap, a market source said.

However, the business development company has a lot of outstanding debt and is highly leveraged despite its investment-grade rating, a market source said.

S&P Global Ratings assigned a BBB- debt rating to the new 6.375% notes.

The new 6.375% convertible notes due 2025 were wrapped around 98 in secondary trading, a market source said.

As new paper from Prospect Capital hit the market, the company’s 4.75% convertible notes due 2020 saw high-volume activity.

It appeared the company was buying back the 4.75% notes at a flat market rate of 101.5, a market source said.

Proceeds from the new convertible notes offering were to be used to repurchase the 4.75% notes.

“It’s a good extension trade for accounts and a good trade for the market,” a source said.

Palo Alto expands

While focus was on the new paper on Wednesday, Palo Alto’s 0.75% convertible notes due 2023 were active and making gains on an outright and dollar-neutral basis as stock soared post-earnings.

Palo Alto’s 0.75% notes gained 5 points outright in high-volume activity.

The notes traded up to 113.375 by the late afternoon. They were expanded 0.25 point to 0.375 point dollar-neutral.

Given the move in Palo Alto’s stock, the notes should have done better, a market source said.

However, the majority of holders of the notes were outright accounts, another source said.

Palo Alto stock broke out to a new 52-week high on Wednesday. Stock traded as high as $260.63 before closing the day at $254.88, an increase of 8.21%.

Stock soared after the network security company reported second-quarter earnings per share of $1.51 which beat analyst expectations for earnings per share of $1.22.

Revenue was $711.2 million versus analyst expectations for revenue of $682 million.

Mentioned in this article:

Applied Optoelectronics Inc. Nasdaq: AAOI

Danaher Corp. NYSE: DHR

LivePerson, Inc. Nasdaq: LPSN

Palo Alto Networks Inc. NYSE: PANW

Prospect Capital Corp. Nasdaq: PSEC

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