Wayfair on tap; Akamai tightens talk; Workiva looks cheap; Southern Co. in demand

By Abigail W. Adams

Portland, Me., Aug. 13 – The new issue frenzy in the convertibles primary market continued with one new pricing after the market close on Monday, three set to price after the market close on Tuesday, and one more deal on deck for after the market close on Wednesday.

Wayfair Inc. plans to price $750 million of seven-year convertible notes after the market close on Wednesday with price talk for a coupon of 0.5% to 1% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

Goldman Sachs & Co. LLC and Citigroup Global Markets Inc. are bookrunners for the Rule 144A offering, which carries a greenshoe of $112.5 million.

Workiva Inc. plans to price $300 million of seven-year convertible notes, Akamai Technologies Inc. plans to sell $1 billion of eight-year convertible notes, and Southern Co. plans to price $1.5 billion, or 30 million par of $50 series A equity units, after the market close on Tuesday.

Sources had mixed reviews about the deals in the works. However, all were heard to be in demand with the books closing early.

While sources pegged the deal rich, Akamai was heard to have tightened talk on its offering. Workiva’s and Southern Co.’s deals both looked cheap, sources said.

Meanwhile, Insight Enterprises Inc.’s newly priced convertible notes dominated activity in the secondary space with the notes seeing a modest expansion on their debut.

Akamai tightens talk

Akamai Technologies tightened talk on its $1 billion offering of eight-year convertible notes to a coupon of 0% to 0.375% and an initial conversion premium of 30%, according to a market source.

Price talk had initially been for a coupon of 0% to 0.5% and an initial conversion premium of 30% to 35%, according to a market source.

While the deal was heard to be in demand with talk tightened and the books closing early, sources pegged the deal rich, especially at the rich end of the initial price talk.

The deal was heard to be in the market with assumptions of 125 basis points over Libor and a 25% vol., according to a market source.

However, the deal would have had to price at the cheap end of talk to come out to fair value, a source said.

Using assumptions of 180 bps over Libor and a 30% vol., the deal modeled out to fair value at the midpoint of talk, another source said.

While Akamai’s short-term vol. was through the roof, the company’s long-term vol. was not, a source said.

Using a more conservative credit spread and vol. assumptions, the deal looked 1 point to 1.5 points rich at the midpoint of price talk, a market source said.

Despite the tight pricing and long duration of the notes, the large offering was heard to be in demand with the books closing early.

The new notes were seen at 100.5 in the gray market, a source said.

Akamai is a well-known name in the convertibles space, and investors have made money off its previous issues.

The content delivery and cloud service provider priced a $1.15 billion issue of 0.125% convertible notes as recently as May 2018.

The 0.125% convertible notes due 2025 were active on Tuesday with holders most likely making room for the new offering, a market source said.

The 0.125% notes were changing hands around 112.5 early in the session and rose to 113.5 later in the afternoon, a market source said.

Akamai stock closed Tuesday at $89.37, an increase of 0.18%.

Workiva looks cheap

Workiva plans to price $300 million of seven-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.875% to 1.375% and an initial conversion premium of 37.5% to 42.5%, according to a market source.

The deal looked cheap and was heard to have been in demand during bookbuilding with the books also closing early.

The deal was heard to be in the market with assumptions of 325 bps over Libor and a 38% vol.

Using those assumptions, the deal modeled out to fair value at the rich end of talk, was about 3.6 points cheap at the midpoint of talk, and about 3.8 points cheap at the cheap end of talk, according to a market source.

The offering is the first time the Ames, Iowa-based reporting and compliance solutions company is tapping the convertibles space.

Southern Co.’s deal

Southern Co. plans to sell $1.5 billion, or 30 million three-year par of $50 series A equity units, after the market close on Tuesday with price talk for a dividend of 6.625% to 7.125% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

The equity units offering was heard to be in demand with the books closing in the early afternoon.

The deal was well priced, especially compared to some of the other convertible offerings from utility companies, a market source said.

The coupon was attractive and the premium was reasonable.

While the Atlanta-based energy company’s stock pays a dividend of 4%, the large coupon on the offering provided investors with a large yield advantage, the source said.

With a shortage of mandatory convertible paper in the space and the equity units expected to receive an investment-grade rating, the deal is expected to do well.

Insight dominates

Insight Enterprises priced $300 million of 5.5-year convertible notes after the market close on Monday with a coupon of 0.75% and an initial conversion premium of 32.5%.

Pricing came at the rich end of talk for a coupon of 0.75% to 1.25% and at the midpoint of talk for an initial conversion premium of 30% to 35%, according to a market source.

The new paper dominated activity in the secondary space with more than $38 million in reported volume about one hour into Tuesday’s session and $65 million heading into the market close.

The notes were largely wrapped around par early in the session. However, they made modest gains on an outright basis and were trading between 100.25 and 100.5 in the late afternoon, sources said.

With stock off on Tuesday, the notes were expanded about 0.25 point dollar-neutral.

Insight stock closed Tuesday at $51.16. a decrease of 0.78%.

Mentioned in this article:

Akamai Technologies Inc. Nasdaq: AKAM

Insight Enterprises Inc. Nasdaq: NSIT

Southern Co. NYSE: SO

Wayfair Inc. NYSE: W

Workiva Inc. NYSE: WK

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