Morning Commentary: Freshpet convertible notes price, jump on secondary market debut

By Abigail W. Adams

Portland, Me., March 16 – It was a relatively quiet start to the day in the convertibles secondary space as markets digested Credit Suisse’s bailout from the Swiss National Bank, headlines that First Republic Bank was exploring a sale and a European Central Bank that raised interest rates by 50 basis points despite the recent disruption in financial markets.

New paper from Freshpet Inc. was in focus and making strong gains on debut on a volatile open for equities with troubles in the banking center continuing to cast uncertainty over markets.

Indexes launched the day in the red but turned mixed as the session progressed with the tech heavy Nasdaq Composite continuing to outperform amid the rate rally.

The Dow Jones industrial average was up 68 points, or 0.21%, the S&P 500 index was up 0.58%, the Nasdaq Composite index was up 0.95% and the Russell 2000 index was down 0.86% shortly before 11 a.m. ET.

Trading activity in Freshpet was muted for a new issue. However, the notes soared out of the gate.

Freshpet priced $350 million of five-year convertible notes after the market close on Wednesday at par at the cheap end of talk with a coupon of 3% and an initial conversion premium of 27.5%.

Price talk was for a coupon of 2.5% to 3% and an initial conversion premium of 27.5% to 32.5%.

The deal sparked ire from shareholder JANA Partners, which issued a statement in opposition to the capital raise on Wednesday.

However, several sources found the offering attractive and it closed multiple times oversubscribed with the majority of allocations to outright accounts.

The 3% convertible notes traded up to 101.75 out of the gate and rose to a 102-handle as the session progressed.

They were marked at 102 bid, 102.5 offered with stock in negative territory early in the session.

There was $11 million in reported volume about one hour into the session.

The notes were thinly traded for a new issue.

However, the offering went mostly to outright accounts, which will hold them long-term, a source said.

Freshpet’s stock was changing hands at $56, an increase of 2.26%, shortly before 11 a.m. ET.

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