Convertibles mostly mixed; Splunk’s new 2023, 2025 convertibles trade actively around par

By Rebecca Melvin

New York, Sept. 19 – Convertibles were mixed on Wednesday with most of the day’s action focused on the new Splunk Inc. tranches, a market source said.

Both Splunk convertible issues were trading right around par on a delta-neutral basis early Wednesday and held up despite lower shares later in the day, market sources said.

“They improved some with the stock down,” a New York-based trader said on Wednesday after the San Francisco-based software company priced an upsized $1.85 billion of the notes in tranches due 2023 and 2025.

“They are both trading right around par delta neutral, but they are trading actively,” a New York-based market source said early in the session.

Splunk priced both issues at par at the midpoint of coupon price talk for the $1.1 billion of 0.5% five-year notes and at the cheap end of coupon price talk for the 1.125% seven-year notes. Both tranches priced at the cheap end of talk for the initial conversion premium.

Meanwhile Glencore plc joined the new issue calendar with an add-on to its existing cash-settled 0% convertibles due 2025, which priced originally in March. The Baar, Switzerland-based global diversified natural resource company is expected to price its new paper prior to the market open on Thursday via joint bookrunners BNP Paribas and Citigroup.

The new bonds will be issued with a price between 89% and 89.5% of their nominal value.

The original $500 million convertible priced in March at 93.25% of nominal value.

Concurrently with the placing of the new bonds, the issuer will purchase from one or more hedge counterparties cash-settled call options on shares of Glencore to hedge the increase in its economic exposure to a potential exercise of the conversion rights embedded in the bonds.

The proceeds will be used for general corporate purposes and for the purchase of the call options.

Back in secondary market action, including DocuSign Inc., which priced 0.5% notes due 2023 last Friday. The $500 million DocuSign deal has slipped in trade but has outperformed the underlying shares in the last four sessions.

DocuSign is a San Francisco-based provider of electronic signature technology and digital transaction management service.

The company’s shares closed down at $51.73 on Wednesday. The shares have drifted down since pricing. They were off $1.30, or 2.5%, on the day and down almost 10% from $57.25 last Friday.

Splunk holds in around par

Splunk’s 0.5% convertibles due 2023 and 1.125% convertibles due 2025 closed around par on Wednesday.

Splunk shares closed down 88 cents, or 0.76%, to $115.43 on Wednesday.

The company priced $1.85 billion of the notes and there is a greenshoe for up to an additional $165 million of 2023 notes and up to an additional $112.5 million of 2025 notes.

The $1.1 billion of convertible notes due 2023 priced with a 0.5% coupon. And the $750 million of convertible senior notes due 2025 priced with a 1.125% coupon.

Both tranches priced at an initial conversion premium of 27.5%, which was the cheap end of talk for the initial conversion premium. But there is a capped call that lifts the conversion premium from the issuer’s perspective to 100%.

There have been several $1 billion offerings this year from the tech sector, but this was the largest year to date.

Splunk’s two-tranche offering of convertible notes modeled cheap and was in demand during book building, particularly the short-dated paper.

Mentioned in this article:

DocuSign Inc. Nasdaq: DOCU

Glencore plc OTC: GLNCY

Splunk Inc. Nasdaq: SPLK

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