Q2 Holdings richens on debut; Okta looks cheap; Wayfair, Macquarie notes up on swap

By Abigail W. Adams

Portland, Me., Feb. 22 – Q2 Holdings Inc.’s newly priced 0.75% convertible notes due 2023 dominated trading in the secondary market on their debut Thursday and were up about 1.75 points to 2 points on a dollar-neutral basis, a market source said.

However, Okta Inc.’s offering of $300 million of five-year convertible notes, which is set to price after the market close Thursday, is the deal people are looking at, the source said.

Price talk is for a coupon of 0.25% to 0.75% and an initial conversion premium of 27.5% to 32.5%.

The offering is being marketed with a credit spread of 300 basis points over Libor and a 40% volatility.

The Okta deal looks more attractive than Q2, a market source said.

The new paper from Q2 spurred trading volume in the convertibles space on Thursday and accounted for more than $95.5 million of the $475.35 million in trading volume by dollar amount by mid-afternoon.

Wayfair Inc.’s 0.375% convertible notes due 2022 were a distant second to the focus of trading activity on Thursday. The notes were tanking on an outright basis alongside stock after the Boston-based e-commerce company released its fourth-quarter and year-end reports prior to the market open.

However, the notes were up about 0.75 to 1 point on swap, market sources said.

Macquarie Infrastructure Corp.’s 2% convertible notes due 2023 and 2.875% convertible notes due 2019 were also down on an outright basis after the New York-based owner and operator of infrastructure businesses released fourth-quarter and year-end results.

However, the notes also expanded about a point dollar neutral, a source said.

Q2 dominates

With a coupon of 0.75% and an initial conversion premium of 27.5%, Q2 priced $200 million of five-year convertible notes at the rich end of talk prior to the market open on Thursday.

Price talk had been for a coupon of 0.75% to 1.25% and an initial conversion premium of 22.5% to 27.5%.

“It seems like it priced well,” a market source said. With pricing on the rich end of talk, “it’s a good indication of what the market is thinking.”

The notes were trading up about 1.5 points in the gray market, a market source said.

The notes saw heavy trading volume throughout Thursday’s session and were trading “in a tight, efficient range,” around 102, another source said.

Q2 stock was largely flat or up 20 cents to 30 cents throughout Thursday’s session.

The notes were up about 1.75 points to 2 points dollar neutral, the source said. “They richened. I’m surprised, given they priced on the rich end,” the source said.

All eyes on Okta

Okta plans to price $300 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 0.25% to 0.75% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The deal is being marketed with a credit spread of 300 bps over Libor and a 40% vol. The Okta deal looks more attractive than the offering from Q2, a market source said.

The Q2 deal was marketed with a credit spread of 300 bps over Libor and a 30% vol. Some sources felt the credit was too tight for Q2.

However, several traders were eyeing the Okta deal. “They model cheap,” a market source said. “It looks like a good deal.”

While Q2 was well received on debut, “everyone’s looking at the other deal,” another source said.

Wayfair up on swap

Wayfair’s 0.375% convertible notes due 2022 and stock tanked on Thursday after the release of its fourth-quarter and year-end reports prior to the market open.

The convertible notes dropped more than 13 points on an outright basis, ending the day below par at 99. Wayfair stock closed the day at $73.95, a decrease of 22.75%.

However, the notes were up about 0.75 point on swap early in the session, a market source said. They were up about 1 point on swap later in the afternoon, a source said.

Wayfair reported a diluted net loss per share of 83 cents and non-GAAP diluted net loss per share of 58 cents for the fourth quarter, which was wider than expected.

Wayfair reported a diluted net loss per share of $2.81 and non-GAAP diluted net loss per share of $1.97 for 2017.

Macquarie’s earnings

Macquarie Infrastructure’s 2% convertible notes due 2023 and 2.875% convertible notes due 2019 were also down as the company stock tanked after reporting fourth-quarter and year-end earnings after the market close Wednesday.

The 2% notes dropped about 5 points on an outright basis to trade in the 89 to 90 range. The 2.875% notes dropped about 3 points on an outright basis, ending the day below par at 99.

Macquarie’s stock closed Thursday at $37.41, a decrease of 41.2%.

However, both convertible notes expanded about a point dollar neutral, a market source said. Macquarie reported net income per share of $4.13 for the fourth quarter and $5.42 for 2017.

Macquarie’s board approved a cash dividend of $1.44 per share for the fourth quarter, which raised the total distribution for 2017 to $5.56, according to a company release.

However, Macquarie announced that the company would be reducing its dividend payments in 2018 with guidance set for a dividend of $1.00 per share per quarter.

Mentioned in this article:

Macquarie Infrastructure Corp. NYSE: MIC

Okta Inc. Nasdaq: OKTA

Q2 Holdings Inc. NYSE: QTWO

Wayfair Inc. NYSE: W

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