Convertibles primary prices $3.68 billion in six deals; new paper expands on debut

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.

With equities continuing to push higher, more issuers are expected to hop on the convertibles bandwagon.

“If you’re not raising money now, you’re stupid,” a market source said. “With a call spread, it’s practically free money.”

Demand for new paper remained strong with the majority of deals to price upsizing, coming at the midpoint or tight end of talk, and trading up on an outright and dollar-neutral basis on their aftermarket debut.

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 and $51.50 early in the session with stock up a little over 1%, a source said.

The units remained wrapped around $51 in the late afternoon, a source said.

American Electric stock traded to a low of $83.73 and a high of $85.11 before closing the day at $84.15, an increase of 1.03%.

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 largely flat dollar-neutral.

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

The preferreds were marked at $53.125 bid, $53.625 offered in the late afternoon.

The securities were moving in line to slightly improved dollar-neutral, sources said.

KKR stock traded to a high of $36.87 and a low of $36.17 before closing the day at $36.36, an increase of 3.89%.

Wayfair surges

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% early in the session.

They were wrapped around 103 in the late afternoon.

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

Wayfair stock traded to a high of $312.96 and a low of $293.49 before closing the day at $301.74, a decrease of 2.33%.

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 wrapped around 105 in the late afternoon.

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

Perficient stock traded to a high of $43.63 and a low of $40.71 before closing the day at $42.17, an increase of 4.06%.

The pop in stock early in the session 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.

Omeros’ 5.25% notes traded up to 102 on an outright basis even as stock got crushed following its secondary offering.

The notes expanded 2.5 to 3 points dollar-neutral, a source said.

Omeros stock traded to a high of $14.60 and a low of $13.59 before closing the day at $13.67, a decrease of 13.97%.

The company plans to use $127.4 million of proceeds to repurchase $115 million of the principal amount of its 6.25% convertible notes due 2023 in privately negotiated transactions.

The 6.25% convertible notes traded as high as 125 on Tuesday. The previous level of the notes was 101.5, according to Trace data.

Helix gains

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 overnight deal was wall-crossed, sources said.

The 6.75% notes traded up as stock got crushed on Wednesday.

The notes were marked at 102.5 bid, 103 offered with stock off more than 10%.

Helix Energy stock traded to a high of $4.50 and a low of $4.10 before closing the day at $4.37, a decrease of 9.34%.

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, a source said.

Mentioned in this article:

American Electric Power Co. Inc. NYSE: AEP

Helix Energy Solutions Group Inc. NYSE: HLX

KKR & Co. Inc. NYSE: KKR

Omeros Corp. Nasdaq: OMER

Perficient Inc. Nasdaq: PRFT

Wayfair Inc. NYSE: W

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