Wayfair on tap, existing notes come in; Akamai, Workiva below par; Southern Co. gains

By Abigail W. Adams

Portland, Me., Aug. 14 – The convertibles secondary market saw $2.8 billion in new paper flood the space on Wednesday with another $750 million set to price after the market close.

Akamai Technologies Inc. priced $1 billion in eight-year convertible notes, Workiva Inc. sold $300 million of seven-year convertible notes and Southern Co. priced $1.5 billion, or 30 million, three-year par of $50 series A equity units after the market close on Tuesday.

The new paper hit the secondary space on an ugly day for markets with another brutal sell-off in equities and the inverted yield curve in Treasuries signaling an approaching recession.

The Dow Jones industrial average closed the day down 800 points, the Nasdaq composite down 3.02% and the S&P 500 index down 2.93%.

It was a “blood bath” for Akamai’s and Workiva’s new convertible notes with both sinking well below par on their market debut.

However, for those that were able to get their hedges in, the notes saw a modest dollar-neutral expansion, sources said.

Southern Co.’s new equity units were a bright spot on an otherwise harsh day with the notes up on both an outright and dollar-neutral basis.

Meanwhile, Wayfair Inc. is on deck with its $750 million offering of seven-year convertible notes.

Despite the sell-off in equities and the inversion of the two-year and 10-year yield curve in Treasuries, there remained plenty of demand for the new convertible notes with the books closing in the early afternoon.

Wayfair’s 1.125% convertible notes due 2024 were active and trading down on an outright and dollar-neutral basis with the new offering in the works.

Akamai dominates

Akamai Technologies priced $1 billion of eight-year convertible notes after the market close on Tuesday at par with a coupon of 0.375% and an initial conversion premium of 30%.

Price talk came at the cheap end of tightened talk for a coupon of 0% to 0.375% and an initial conversion premium of 30%, according to a market source.

Initial price talk was for a coupon of 0% to 0.5% and an initial conversion premium of 30% to 35%.

The new paper dominated activity in the secondary space with the notes dropping well below par on an outright basis.

The 0.375% notes traded as low as 98.25 with stock off more than 4% early in the session, a market source said.

The sell-off intensified into the afternoon.

They were seen at 97.75 bid, 98.25 offered shortly before noon ET and traded down to 97.625 by the late afternoon.

While well below par, the notes did open up on a dollar-neutral basis.

The notes expanded 0.5 point to 0.75 point dollar-neutral early in the session but came in and were only up about 0.25 point in the afternoon.

However, the expansion only benefited those that were able to get their hedges in, a market source said.

The bonds saw more than $93 million in reported volume by the late afternoon.

Akamai stock traded as high as $88.08 and as low as $83.24 before closing the day at $84.08, a decrease of 5.92%.

Workiva down

Workiva priced $300 million of seven-year convertible notes after the market close on Tuesday with a coupon of 1.125% and an initial conversion premium of 42.5%.

Price talk had been for a coupon of 0.875% to 1.375% and an initial conversion premium of 37.5% to 42.5%, according to a market source.

The 1.125% convertible notes were doing well early in the session but quickly dropped below par as stock “got crushed,” alongside the broader market, a source said.

The 1.125% notes were changing hands at 98 bid, 98.5 offered shortly before noon ET. They continued to trend lower into the afternoon and traded down to 97.75, sources said.

However, the notes were performing well dollar-neutral and were expanded 1 point to 1.5 points early in the session, a market source said.

While the expansion eroded into the afternoon, they were still opening up provided accounts were able to get their hedges in, a source said.

Workiva stock traded as high as $55.25 and as low as $51.18 before closing the day at $51.62, a decrease of 9.5%.

Southern Co. trades up

Southern Co. priced $1.5 billion, or 30 million, three-year par of $50 series A equity units after the market close on Tuesday with a dividend of 6.75% with a threshold appreciation premium of 20%.

Price talk had been for a dividend of 6.625% to 7.125% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

While the convertible notes to hit the market on Wednesday tanked outright, the equity units were performing well with the utility holding company’s stock relatively unscathed by the sell-off in equities.

The equity units were changing hands between $50.25 and $50.50 early in the session.

They were seen at $50.35 bid, $50.50 offered shortly before noon ET.

The units were the only new deal to hit the market on Wednesday that traded up, a source said.

However, the notes came in from their highs toward the market close and stood poised to close the day around $50.20.

They were expanded about 0.25 point dollar-neutral, a market source said.

While up for most of the day, the energy company’s stock came in to close the day with minor losses.

Southern Co. stock traded as high as $57.88 and as low as $56.96 during Wednesday’s session before closing the day at $57.06, a decrease of 0.24%.

Wayfair’s new offering

Despite the sell-off in equities and the inverted yield curve in Treasuries, Wayfair was moving forward with its $750 million offering of seven-year convertible notes, sources said.

There was enough demand for the new notes that books were able to close in the early afternoon, a market source said.

Price talk for the notes was for a coupon of 0.5% to 1% and an initial conversion premium of 32.5% to 37.5%.

While Wayfair’s new offering was in the works, the serial issuer of convertible notes’ 1.125% convertible notes due 2024 were coming in on an outright and dollar-neutral basis.

The 1.125% notes dropped 10 points outright in active trading on Wednesday. They were contracted about 1.5 points dollar-neutral, a market source said.

Wayfair stock traded as high as $122.00 during Wednesday’s session but closed the day at an intraday low of $112.06, a decrease of 10.35%.

Mentioned in this article:

Akamai Technologies Inc. Nasdaq: AKAM

Southern Co. NYSE: SO

Wayfair Inc. NYSE: W

Workiva Inc. NYSE: WK

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