Morning Commentary: Convertibles primary prices $3.68 billion; Wayfair, Perficient surge

By Abigail W. Adams

Portland, Me., Aug. 12 – The convertibles primary market opened its floodgates and priced $3.68 billion over six deals after the market close on Tuesday.

American Electric Power Co. Inc., KKR & Co. Inc., Wayfair Inc., Perficient Inc., Omeros Corp. and Helix Energy Solutions Group Inc. all cleared the primary market.

Most of the new deals were performing well on debut with Wayfair and Perficient’s new notes skyrocketing on a dollar-neutral basis.

American Electric eyed

American Electric priced $750 million, or 15 million, three-year $50-par equity units after the market close on Tuesday with a 6.125% dividend and a threshold appreciation premium of 20%.

Pricing came at the rich end of talk for a dividend of 6.125% to 6.625% and the midpoint of talk for a threshold appreciation premium of 17.5% to 22.5%.

While some did not find the deal attractive, it played to heavy outright demand during bookbuilding, a source said.

The units were seen changing hands between $51 to $51.50 early in the session with stock up a little over 1%, a source said.

However, volume was light with only 1 million shares in play.

The notes were pretty well placed, a source said.

American Electric stock was $84.89, an increase of 1.92%, shortly before 11 a.m. ET.

KKR upsizes

KKR priced an upsized $1 billion, or 20 million shares, of $50-par three-year series C mandatory convertible preferred stock (BBB+) after the market close on Tuesday with a dividend of 6% and a threshold appreciation premium of 22.5%.

Pricing came at the midpoint of talk for a dividend of 5.75% to 6.25% and at the rich end of talk for a threshold appreciation premium of 17.5% to 22.5%.

The greenshoe was also upsized to $150 million, or 3 million shares.

The initial size of the offering was $750 million, or 15 million shares, with a greenshoe of $112.5 million, or 2.25 million shares.

The convertible preferred stock was making gains on an outright basis but was flat dollar-neutral in early trading.

The preferreds were seen trading up to $53 a little over one hour into the session.

However, the notes were largely moving in line dollar-neutral, a source said.

KKR stock was $36.76, an increase of 5.03%, shortly before 11 a.m. ET.

Wayfair skyrockets

Wayfair priced an upsized $1.32 billion of five-year convertible notes after the market close on Tuesday at par with a coupon of 0.625% and an initial conversion premium of 32.5%.

Pricing came at the rich end of talk for a coupon of 0.625% to 1.125% and at the midpoint of talk for an initial conversion premium of 30% to 35%.

The greenshoe was also upsized to $198 million.

The initial size of the offering was $1.2 billion with a greenshoe of $180 million.

The 0.625% convertible notes skyrocketed on debut.

They were changing hands around 102.5 on an outright basis with stock down more than 2%.

The notes were up 3.75 points dollar-neutral on bid, a source said.

Wayfair stock was $302.50, a decrease of 2.09%, shortly before 11 a.m. ET.

The home decor e-commerce company repurchased $343.4 million of the principal amount of its 0.375% convertible notes due 2022 for $1,040,900,000 in cash in privately negotiated transactions.

The 0.375% notes were repurchased at 302.928.

Perficient skyrockets

Perficient priced an upsized $200 million five-year convertible notes after the market close on Tuesday at par at the midpoint of talk with a coupon of 1.25% and an initial conversion premium of 27.5%.

Price talk was for a coupon of 1.125% to 1.625% and an initial conversion premium of 25% to 30%, according to a market source.

The greenshoe was also upsized to $30 million.

The initial size of the offering was $185 million with a greenshoe of $27.75 million.

The new 1.25% notes also skyrocketed on debut.

The notes traded as high as 106 on an outright basis soon after the opening bell.

They were changing hands around 105 about one hour into the session.

The notes expanded 3 points dollar-neutral on the bid, a source said.

Perficient stock was $42.58, an increase of 5.07%, shortly before 11 a.m. ET.

The pop in stock may have been due to some short-covering from accounts that had borrowed too much, a source said.

Approximately $172 million of the proceeds from the new offering were used to repurchase $131.2 million of the principal amount of Perficient’s 2.375% convertible notes.

Omeros upsizes, downsizes

Omeros priced an upsized $210 million of long five-year convertible notes after the market close on Tuesday at par with a coupon of 5.25% and an initial conversion premium of 27.5%.

Pricing came at the midpoint of talk for a coupon of 5% to 5.5% and at the rich end of talk for an initial conversion premium of 22.5% to 27.5%, according to a market source.

The greenshoe was also upsized to $31.5 million.

The initial size of the offering was $200 million with a greenshoe of $30 million.

Concurrently with the convertible notes offering, the company priced a downsized secondary stock offering of $100 million, or 6.9 million shares, at a public offering price of $14.50 per share.

The greenshoe was also downsized to $15 million, or 1,035,000 shares.

The initial size of the secondary offering was $125 million with a greenshoe of $18.75 million.

While the convertible notes played to healthy demand, the secondary offering was heard to have struggled during bookbuilding, a source said.

Helix unchanged

Helix Energy priced an upsized $200 million 6.75% convertible notes due Feb. 15, 2026 prior to the market open on Wednesday at par with an initial conversion premium of 45%.

Pricing came in line with talk for a fixed coupon of 6.75% and a fixed initial conversion premium of 45%, according to a market source.

The initial size of the offering was $175 million.

The company will use $183 million of net proceeds to repurchase $90 million of the principal amount of the 4.25% convertible notes due 2022 and $95 million of the principal amount of the 4.125% convertible notes due 2023 in privately negotiated transactions.

Both issues appeared to be repurchased at 99.

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