Morning Commentary: Snap skyrockets; Alteryx, Ironwood, Mesa Labs eyed; CorEnergy on tap

By Abigail W. Adams

Portland, Me., Aug. 7 – The convertibles primary market was in high gear on Wednesday with one $1.1 billion deal pricing post-close Tuesday and four more deals on deck.

Snap Inc.’s newly priced convertible notes dominated activity in the secondary space and skyrocketed on their debut.

New offerings from Mesa Laboratories Inc., Alteryx Inc. and Ironwood Pharmaceuticals, Inc. are set to price after the market close on Wednesday.

While some deals modeled better than others, all looked cheap based on underwriters’ assumptions, sources said.

CorEnergy Infrastructure Trust, Inc. also joined the forward calendar with a $100 million offering of six-year convertible notes. Proceeds will be used to repurchase a portion of the company’s outstanding 7% senior notes due 2020, according to a company news release.

Further details were not immediately available.

Snap skyrockets

Snap priced an upsized $1.1 billion offering of seven-year convertible notes after the market close on Tuesday at par with a coupon of 0.75% and an initial conversion premium of 40%, according to a market source.

Price talk was for a coupon of 0.75% to 1.25% and an initial conversion premium of 37.5% to 42.5%.

The greenshoe was also upsized to $165 million.

The initial size of the deal was $1 billion with a greenshoe of $150 million.

The new paper dominated activity in the secondary space and skyrocketed on debut.

The 0.75% convertible notes traded as high as 103 pre-open.

While they came in to 101.75 bid, 102 offered shortly before the opening bell, they again rallied back to 103 about one hour into the session.

The notes expanded as much as 4 points dollar-neutral, a market source said.

Snap stock was off early in Wednesday’s session and traded down to $15.985, a decrease of 1.87%, shortly before 11 a.m. ET.

Ironwood looks cheap

Ironwood plans to price a $165 million tranche of five-year convertible notes and a $165 million tranche of seven-year convertible notes after the market close on Wednesday.

Both tranches looked cheap, sources said.

Price talk for the five-year tranche is for a coupon of 0.625% to 1.125% and an initial conversion premium of 35% to 40%.

The tranche is being marketed with assumptions of 375 basis points over Libor and a 40% vol., which modeled about 2 points cheap at the midpoint of talk, according to a market source.

Price talk for the seven-year tranche is for a coupon of 1.25% to 1.75% and an initial conversion premium of 35% to 40%.

The longer duration tranche carries assumptions of 425 bps over Libor and a 40% vol., which modeled about 2.75 points cheap at the midpoint of talk.

A portion of the proceeds will be used to repurchase up to $185 million of the outstanding amount of Ironwood’s 2.25% convertible notes due 2022.

Alteryx on tap

While Alteryx’s new offering had the tightest pricing of the deals in the pipeline, the company also had the best credit, sources said.

Alteryx plans to price a $350 million tranche of five-year convertible notes and a $350 million tranche of seven-year convertible notes after the market close on Wednesday.

Price talk for the five-year convertible notes is for a coupon of 0.25% to 0.75% and an initial conversion premium of 45% to 50%, according to a market source.

Price talk for the seven-year tranche is for a coupon of 0.75% to 1.25% and an initial conversion premium of 45% to 50%.

The five-year tranche was being marketed with a credit spread of 250 bps over Libor and a 40% vol.

The seven-year tranche was being marketed with a credit spread of 300 bps over Libor and a 40% vol.

Both tranches modeled about 1 point cheap at the midpoint of talk.

Proceeds from Alteryx’s deal will also be used to refinance its existing convertible notes.

The computer software company plans to repurchase up to 50% of the outstanding 0.5% convertible notes due 2023 through individually negotiated transactions.

Mesa Labs’ offering

While Mesa Labs’ offering was the cheapest deal in the pipeline, it also was the riskiest credit.

Mesa Labs plans to price $150 million of six-year convertible notes after the market close on Wednesday with price talk for a coupon of 1.375% to 1.875% and an initial conversion premium of 30% to 35%.

The deal is being marketed with a credit spread of 400 bps over Libor and a 34% vol., which modeled about 2.5 points at the midpoint of talk, a source said.

Some sources felt the assumptions were tight. The deal looked to be fair value with a wider credit spread and lower vol., a market source said.

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