Tetra Tech caps busy week for primary market, up on aftermarket debut; Farfetch plunges

By Abigail W. Adams

Portland, Me., Aug. 18 – The convertibles primary market rounded out another active week with a $500 million offering clearing the market.

Tetra Tech Inc. priced $500 million of five-year convertible notes after the market close on Thursday.

The deal lifted the weekly tally to $2.225 billion, which priced over three deals.

The Aug. 14 week ranks among the top five busiest weeks of the year for new issuance; the previous week ranked the second.

However, the majority of deals to clear the primary market in the flurry of activity over the last two weeks were “not exciting,” a source said.

Several sources felt underwriters were pushing the terms of the recent deals, utilizing the pricing power that came from the issuance drought in July.

However, sources expect pricing to cheapen with investors pushing back especially after the poor aftermarket performance of several recent deals.

“It’ll be a buyers’ market soon,” a source said.

While the terms of Tetra Tech’s deal did not generate much enthusiasm, the more attractive terms did seem to help their aftermarket performance with the new paper notching some outright and dollar-neutral gains.

Equity indexes stabilized on Friday after the heavy selling of the previous two sessions.

The Dow Jones industrial average closed up 26 points, or 0.07%, the S&P 500 index closed down 0.01%, the Nasdaq Composite index closed down 0.20% and the Russell 2000 index closed up 0.51%.

There was $717 million on the tape about one hour before the market close with Tetra Tech’s new notes dominating activity in the secondary space.

However, there was a large rebalancing of some outright portfolios on Friday, which also helped drive volume.

“There’s a lot of merchandise for sale,” a source said.

While some outright accounts were reducing their positions in some issues, most names were trading in line.

Farfetch Ltd.’s 3.75% convertible notes due 2027 were the ‘disaster du jour’ of Friday’s session with the notes falling double digits outright and contracting several points dollar-neutral after an earnings miss.

Tetra Tech gains on debut

Tetra Tech priced $500 million of five-year convertible notes after the market close on Thursday at par with a coupon of 2.25% and an initial conversion premium of 25%.

Pricing came toward the rich end of talk for a coupon of 2.125% to 2.625% and at the midpoint of talk for an initial conversion premium of 22.5% to 27.5%.

Tetra Tech’s offering modeled about 2.9 points cheap at the midpoint of talk based on underwriters’ assumptions of a credit spread of 200 basis points over SOFR and a 28% vol.

The offering was slightly more attractive than Workiva Inc.’s 1.25% convertible notes due 2028 and Akamai Technologies Inc.’s 1.125% convertible notes due 2029, which priced earlier in the week.

“They gave a little on the coupon but it’s nothing exciting,” a source said.

While the terms of Tetra Tech’s deal did not generate much enthusiasm, the more attractive terms did seem to help their aftermarket performance with the new paper notching some outright and dollar-neutral gains.

Tetra Tech’s new 2.25% convertible notes traded up to 101 out of the gate before settling at 100.5 with stock flat early in the session, a source said.

They were wrapped around 101 versus a stock price of $157.25 in the late afternoon.

The notes gained 0.5 point to 1 point dollar-neutral, a source said.

There was $718 million in reported volume.

Tetra Tech’s stock traded to a low of $155.68 and a high of $158.30 before closing at $158.17, off 0.55%.

Farfetch crumbles

Farfetch’s 3.75% convertible notes due 2027 crumbled on an outright and dollar-neutral basis on Friday with stock nearly cut in half following earnings.

The 3.75% notes sank 14 points outright with stock down more than 45%.

The convertibles were changing hands at 63.75 versus a stock price of $2.69 in the late afternoon.

The notes contracted several points dollar-neutral on the move down, a source said.

“Those were a disaster,” the source said.

There was $6 million in reported volume.

Farfetch’s stock traded to a low of $2.50 and a high of $3.18 before closing at $2.61, a decrease of 45.17%.

Stock crumbled after the luxury fashion e-commerce company reported earnings.

While Farfetch beat on the bottom line with losses per share of 21 cents versus the losses per share of 23 cents expected, the company posted a large revenue miss.

Farfetch reported revenue of $572 million versus the $650 million expected.

The earnings results were met with a chorus of analyst downgrades.

Mentioned in this article:

Akamai Technologies Inc. Nasdaq: AKAM

Farfetch Ltd. NYSE: FTCH

Tetra Tech Inc. Nasdaq: TTEK

Workiva Inc. Nasdaq: WK

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.