Proficient convertibles notes offering eyed; Etsy expands as stock surges

By Abigail W. Adams

Portland, Me., Nov. 4 – After almost a month of inactivity, the convertible bond primary market returned to action with the second deal of the week set to price after the market close.

Perficient Inc. plans to price $300 million of five-year convertible notes after the market close on Thursday.

The deal looked fair value to cheap based on underwriters’ assumptions, sources said.

However, the deal was already mostly spoken for by holders of the company’s 1.25% convertible notes due 2025, a source said.

While the convertible primary market was quiet throughout October, November is expected to be busy with several deals set to launch as company’s exit their earnings season blackouts, sources said.

Meanwhile, earnings-related volatility continued to spark activity in outstanding convertible notes with Etsy Inc. a major mover of the day.

The e-commerce company’s convertible notes made large gains on an outright basis and expanded dollar-neutral as stock surged following a large earnings beat.

Wayfair Inc.’s 0.625% convertible notes due 2025 again dropped below par following disappointing earnings after being pushed above par the previous session.

Perficient eyed

Perficient plans to price $300 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 25% to 30%.

The deal was heard to be in the market with assumptions of 275 basis points over Libor and a 30% vol.

Using those assumptions, the deal looked 0.28 point to 0.34 point cheap at the midpoint of talk, sources said.

However, another source saw the deal about 1 point cheap.

The offering was “somewhat wall-crossed,” a source said.

Concurrent to the new offering, Perficient plans to enter into privately negotiated transactions with holders of its 1.25% convertible notes due 2025 to exchange a portion of the principal amount for cash and stock.

The top five holders of the 1.25% notes were switching into the new issue “effectively walling out smaller holders,” a source said.

The deep-in-the-money 1.25% notes were changing hands at 257.5 on Thursday as Perficient stock surged.

Stock traded to a low of $135 and a high of $150.93 before closing the day at $148.86, an increase of 13.33%.

The hedge transactions on the new offering and the unwinding of the hedge transactions of the 1.25% notes were most likely driving up the price of stock.

If holders of the 1.25% notes were on a 100% hedge, “there’s a lot of shares that need to be bought back to get the hedges correct,” on the new notes, a source said.

The hedge on the new notes will most likely be 60%, another source said.

Etsy’s earnings

Etsy’s convertible notes were among the major movers of the day as stock surged following better than expected earnings.

The 0.125% convertible notes due 2027 and the 0.25% convertible notes due 2028 rose about 10 points outright with stock up more than 13%.

The 0.125% convertible notes due 2027 were changing hands at 148.5 early in the session. They jumped to 157 as the session progressed.

Etsy’s 0.25% convertible notes were changing hands at 136.625 versus a stock price of $278.40 early in the session.

They were changing hands at 135 versus a stock price of $275 in the late afternoon.

The notes were moving on a 75 delta heading into Thursday’s session but moved to an 80 delta following the stock surge, a source said.

They expanded dollar-neutral on the move up.

Etsy stock traded to a low of $236.07 and a high of $283.40 before closing the day at $271.51, an increase of 13.31%.

Etsy reported earnings per share of 62 cents versus analyst expectations for earnings per share of 54 cents.

Revenue was $532.4 million versus analyst expectations for revenue of $518.9 million.

Wayfair below par

Wayfair’s 0.625% convertible notes due 2025 again fell below par as stock dropped following disappointing earnings.

The notes were down about 1.5 points outright with stock off more than 4%.

The notes were changing hands at 99.75 in the late afternoon.

Wayfair stock traded to a low of $241.20 and a high of $261.15 before closing the day at $255.57, a decrease of 4.85%.

The 0.625% notes traded up to 101.5 the previous session as stock surged on optimism surrounding the earnings.

Wayfair reported mixed earnings. While the e-commerce company beat on the bottom line with earnings of 14 cents versus analyst expectations for earnings of 4 cents.

However, revenue of $3.12 billion fell short of expectations for revenue of $3.23 billion.

Mentioned in this article:

Etsy Inc. Nasdaq: ETSY

Perficient Inc. Nasdaq: PRFT

Wayfair Inc. NYSE: W

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