PureCycle green convertible notes jump on debut; Insulet active; Akamai improves

By Abigail W. Adams

Portland, Me., Aug. 22 – The convertibles primary market was quiet on Tuesday after an overnight offering cleared the market post-close on Monday.

New deal activity is expected to be muted over the next two weeks with the market entering the doldrums of August.

However, there may be some surprises in store.

Meanwhile, there was an uptick of activity in the secondary space on Tuesday as new paper from PureCycle Technologies Inc. made its aftermarket debut.

The notes jumped in aftermarket activity with the uniquely structured offering attractive, sources said.

The new paper hit the secondary space on a mixed day for equities with indexes wavering between gains and losses throughout the session.

The Dow Jones industrial average closed Tuesday down 175 points, or 0.51%, the S&P 500 index closed down 0.28%, the Nasdaq Composite index closed up 0.06% and the Russell 2000 index closed down 0.28%.

There was $109 million on the tape about one hour into the session and $400 million on the tape in the late afternoon with new paper from PureCycle and pre-positioning ahead of the anticipated slowdown in the market accounting for the majority of activity on the tape.

Insulet Corp.’s 0.375% convertible notes due 2026 were active with analysts giving competing outlooks on the company’s stock.

Akamai Technologies Inc.’s 1.125% convertible notes due 2029 improved on Tuesday although the recently priced notes remain below par.

PureCycle jumps

PureCycle priced an upsized $215 million of 7.25% seven-year green convertible notes after the market close on Monday with a discounted offer price of 90 and an initial conversion premium of 50%.

Pricing came in line with talk for a discounted offer price of 90, richer than talk for a fixed coupon of 7.5% and in line with talk for a fixed initial conversion premium of 50%, according to a market source.

The notes will be accretive for the first four years and reach par on Aug. 15, 2027.

The wall-crossed offering carried a unique structure with accretive convertible notes rare.

“We haven’t seen those in a while,” a source said.

The accretive structure lifted the yield on the notes to double digits for the first four years with the deal akin to a high-yield issuance from a company that would most likely be unable to obtain credit ratings, a source said.

The company currently produces no revenue with sources pegging the credit spread anywhere between 800 basis points and 1,200 bps over SOFR.

However, the borrow on the stock was decent and the deal looked attractive, a source said.

The offering was wall-crossed and already spoken for at the time of launch.

While slow to Trace early in the session, the notes were dominating activity in the secondary space by the afternoon and skyrocketed on debut.

The 7.25% notes jumped to a 94-handle and were changing hands at 94.375 versus a stock price of $8.60 in the late afternoon, a source said.

There was $40 million in reported volume.

PureCycle’s stock took a beating on the convertible notes offering and traded to a low of $8.02 and a high of $8.89 before closing at $8.74, a decrease of 11.49%.

Insulet active

Insulet’s 0.375% convertible notes due 2026 saw heavy volume on Tuesday as stock wavered between gains and losses on the heels of competing analyst recommendations about the stock.

The 0.375% notes were changing hands at 106.25 versus a stock price of $198.95 early in the session and were wrapped around 106 in the late afternoon.

The notes were moving in line dollar-neutral, a source said.

There was $20 million in reported volume.

Insulet’s stock traded to a low of $193.25 and a high of $199.81 before closing at $197.74, off 0.62%.

Analysts are at odds over the insulin management company with a Baird analyst recently downgrading the company from “overweight” to “neutral” and slashing its price target to $219 from $320 while a Citi analyst upgraded the stock to “buy” from “neutral.”

While Citi analysts upgraded the stock, the price target was also cut to $265 from $273.

Insulet’s stock fell 4% on Monday following the analysts’ reports.

Akamai improves

Akamai’s 1.125% convertible notes due 2029 improved on Tuesday although the recently priced notes remained below par.

The 1.125% notes rose about 0.5 point outright with stock up under 1%.

The convertibles were trading just shy of par versus a stock price of $101.64 in the late afternoon.

The notes were moving in line to slightly better dollar-neutral, a source said.

Akamai’s stock traded to a low of $100.94 and a high of $101.99 before closing at $101.23, up 0.64%.

The notes, which priced at par on Aug. 15, have struggled since hitting the market, trading below par and flat to slightly contracted dollar-neutral.

Sources have pointed to tight pricing as the cause of the underperformance of several recent deals.

Mentioned in this article:

Akamai Technologies Inc. Nasdaq: AKAM

Insulet Corp. Nasdaq: PODD

PureCycle Technologies Inc. Nasdaq: PCT

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