Morning Commentary: PagerDuty convertible offering eyed; Rivian notes shoot higher

By Abigail W. Adams

Portland, Me., Oct. 10 – The convertibles primary market unleashed another deal amid volatility in credit and equity markets with PagerDuty Inc.’s $350 million offering of five-year convertible notes slated to price after the market close.

The latest refinancing deal to come to the market modeled cheap based on underwriters’ assumptions.

However, the real value will be in the buyback of its outstanding notes.

The offering was in the market as the heavy selling in equities and Treasuries of the previous week gave way to buying as markets dialed back expectations for additional rate increases based on the comments of several Fed members.

Treasury yields dropped double digits as rate expectations repriced with the 10-year yield down 13.2 basis points to 4.665% shortly before 11 a.m. ET.

The Dow Jones industrial average was up 136 points, or 0.40%, the S&P 500 index was up 0.67%, the Nasdaq Composite index up 0.88% and the Russell 2000 index was up 1.44% shortly before 11 a.m. ET.

There was $72 million in reported convertibles trading volume about one hour into the session with Rivian Automotive Inc.’s new 3.625% convertible notes due 2030 accounting for almost one-third of the total activity.

The 3.625% notes were a prime benefactor of the improved market conditions with the notes shooting higher on an outright basis although they were largely moving in line with stock.

PagerDuty eyed

PagerDuty plans to price $350 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 1.25% to 1.75% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of 350 bps over SOFR and a 40% vol.

Using those assumptions, the deal looked about 1.25 points cheap at the midpoint of talk.

The deal did not carry enough cheapness to make the offering attractive, a source said.

However, the deal was coming as a refinancing with holders of its outstanding notes to receive the real kiss in the offering.

Proceeds will be used to repurchase for cash a portion of the company’s outstanding 1.25% convertible notes due 2025 in privately negotiated transactions.

The company will also repurchase up to $50 million in common stock in privately negotiated transactions.

The 1.25% convertible notes due 2025 closed the previous week at 95.625, according to Trace data.

Rivian shoots higher

Rivian’s 3.625% convertible notes due 2030 shot higher alongside stock in active trade early Tuesday with the notes trading up to a 105-handle.

The notes gained 3.5 points outright with stock up more than 5%.

They were trading at 105.375 versus a stock price of $19.71 early in the session, according to a market source.

While higher outright, the notes were largely moving in line with stock.

There was $17 million in reported volume.

Rivian’s stock was trading at $19.50, an increase of 4.01%, shortly before 11 a.m. ET.

Rivian’s stock has not disappointed in terms of volatility with the convertible notes ricocheting between deep outright losses to gains over the past two sessions.

The notes sank to a 96-handle on their aftermarket debut last Friday before recovering to close the day near par.

They again sank to a 98-handle in early trade on Monday before recovering to close the day around 101.25.

However, the notes have largely held on hedge amid the volatility and are now about flat dollar-neutral, a source said.

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