Morning Commentary: SVB mandatory offering eyed; Model N convertibles strong on debut

By Abigail W. Adams

Portland, Me., March 9 – While broader markets remained laser focused on the macro data that will determine the Federal Reserve’s next move, new paper remained in focus in the convertibles space.

The primary market is set to price a $500 million offering after the market close on Thursday after $2.02 billion in three deals cleared the market thus far this week.

SVB Financial Group is on deck with a $500 million offering of $50-par three-year depositary shares representing a 1/20th interest in the company’s $1,000-par series F mandatory convertible preferred stock.

The deal is the first mandatory offering of the year and is expected to play to strong demand.

Meanwhile, new paper from Model N Inc. made its aftermarket debut on another indecisive day for equities.

Equity indexes launched the day strong with signs of a weakening labor force following higher-than-anticipated U.S. jobless claims providing some rate concern relief.

However, indexes came in from a strong open and turned mixed as the session progressed.

The Dow Jones industrial average was up 92 points, or 0.28%, the S&P 500 index was up 0.25%, the Nasdaq Composite index was up 0.38% and the Russell 2000 index was down 0.32% shortly before 11 a.m. ET.

There was $113 million in reported volume about one hour into the session with new paper continuing to dominate the tape.

Model N’s new notes were off to a strong start with the notes making gains on an outright and dollar-neutral basis.

SVB in focus

SVB Financial plans to price $500 million $50-par three-year depositary shares representing a 1/20th interest in the company’s $1,000-par series F mandatory convertible preferred stock after the market close on Thursday with price talk for a dividend of 6% to 6.5% and a threshold appreciation premium of 20% to 25%.

The deal was heard to be in the market with assumptions of 200 basis points over SOFR and a 45% to 43% vol. skew.

Using those assumptions, the deal looked about 1 point cheap at the midpoint of talk.

The deal is pricing alongside a follow-on offering of $1.25 billion shares of common stock.

SVB’s deal is the first mandatory convertible offering of the year.

With several outstanding mandatories in the market set to mature, the deal is expected to be heavily oversubscribed.

Model N gains

Model N priced $220 million of five-year convertible notes after the market close on Wednesday at par with a coupon of 1.875% and an initial conversion premium of 32.5%.

Pricing came at the rich end of talk for a coupon of 1.875% to 2.375% and at the midpoint of talk for an initial conversion premium of 30% to 35%.

While activity in the name was relatively light early in the session, the notes were off to a strong start in the aftermarket.

The notes traded as high as 102.375 early in the session.

They were changing hands at 101.5 versus a stock price of $32.51 about one hour into the session, according to a market source.

The notes expanded about 1 point dollar-neutral.

Model N’s stock was trading at $32.57, an increase of 0.28%, shortly before 11 a.m. ET.

Model N’s latest offering came as a refinancing with a portion of the proceeds used to repurchase for cash $138 million in principal of its 2.625% notes due 2025 for $166.2 million.

The repurchase price appeared to be 119.743, a source said.

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