Alteryx, Ironwood, Mesa Lab on tap; Snap looks cheap; Chesapeake Energy, Whiting active

By Abigail W. Adams

Portland, Me., Aug. 6 – After a period of inactivity, the convertibles primary market returned to action on Tuesday with four deals totaling $2.18 billion launching.

Mesa Laboratories Inc. plans to price $150 million of six-year convertible notes, Alteryx Inc. plans to price a $700 million two-tranche convertible notes offering, and Ironwood Pharmaceuticals, Inc. plans to sell a $330 million two-tranche convertible notes offering after the market close on Wednesday.

In a deal launched prior to the market open, Snap Inc. plans to price $1 billion of seven-year convertible notes after the market close on Tuesday.

The deal looked cheap based on underwriters’ assumptions and was heard to be in demand during the subscription process.

Meanwhile, the secondary space was relatively quiet on Tuesday with most focused on the new offering from Snap, a market source said.

However, oil and gas names were in focus with Chesapeake Energy Corp.’s 5.5% convertible notes due 2026 and Whiting Petroleum Corp.’s 1.25% convertible notes due 2020 major volume movers after both companies reported earnings.

While Chesapeake Energy’s convertible notes were tanking following a disappointing earnings report, Whiting Petroleum’s notes were largely holding steady.

Forward calendar balloons

While earnings and the recent bout of volatility in the markets temporarily sidelined new issue activity, there is an active pipeline of new deals waiting to come forward, a market source said early in the session.

The floodgates opened after the market close with three new deals joining the forward calendar.

Mesa Laboratories plans to price $150 million of six-year convertible notes after the market close on Wednesday with price talk for a coupon of 1.375% to 1.875% and an initial conversion premium of 30% to 35%, according to a market source.

Jefferies LLC, J.P. Morgan Securities LLC and Wells Fargo Securities LLC are the bookrunners for the registered offering, which carries a greenshoe of $22.5 million.

Alteryx plans to sell a $350 million tranche of five-year convertible notes and a $350 million tranche of seven-year convertible notes after the market close on Wednesday, according to a market source.

Price talk for the five-year convertible notes is for a coupon of 0.25% to 0.75% and an initial conversion premium of 45% to 50%, according to a market source.

Price talk for the seven-year tranche is for a coupon of 0.75% to 1.25% and an initial conversion premium of 45% to 50%.

Morgan Stanley & Co. LLC is the active bookrunner for the Rule 144A offering with both tranches carrying a greenshoe of $50 million. Goldman Sachs & Co. LLC and JPMorgan are joint bookrunners.

Ironwood Pharmaceuticals plans to price a $165 million tranche of five-year convertible notes and a $165 million tranche of seven-year convertible notes after the market close on Wednesday, according to a market source.

Price talk for the five-year tranche is for a coupon of 0.625% to 1.125% and an initial conversion premium of 35% to 40%.

Price talk for the seven-year tranche is for a coupon of 1.25% to 1.75% and an initial conversion premium of 35% to 40%.

JPMorgan is bookrunner for the Rule 144A offering with both tranches carrying a greenshoe of $25 million.

Snap looks cheap

Snap planned to price $1 billion of seven-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.75% to 1.25% and an initial conversion premium of 37.5% to 42.5%.

The deal was being marketed with assumptions of 350 basis points over Libor and a 42% vol., according to a market source.

Using those assumptions, the deal modeled about 2.38 points cheap at the midpoint of talk, a source said.

The convertible notes looked cheap even at the rich end of talk, according to another source.

The deal was heard to be in demand during bookbuilding with the books closing in the early afternoon. “It looks like it’s going to be snapped up,” a market source said.

While stock has traded down with the overall market the past few sessions, Snap stock recently broke out to a new 52-week high in late July after a strong second-quarter earnings report.

With stock up almost 200% year to date, the company’s story is one of growth, which makes the company difficult to gage from a value-based perspective.

Snap is a first-time issuer of convertible notes. Many were looking at the company in comparison to Twitter Inc. with Snap offering better growth potential, a source said.

With pent up demand for new paper and money in the convertible space that is ready to be put to work, the deal was expected to do well, sources said.

The oil patch

While equity markets recovered from Monday’s brutal sell-off, the oil patch was again under pressure with crude oil futures continuing to trade down.

Oil and gas convertible issuers were the main volume movers in the secondary space on Tuesday, a market source said.

Chesapeake Energy’s 5.5% convertible notes due 2026 were tanking following a disappointing earnings report.

The 5.5% notes dropped more than 4 points outright on Tuesday. The 5.5% notes were at 65 early in the session and traded down to 63.5 by the afternoon, sources said.

The yield on the notes was well above 13%.

The notes were trading on a 70 handle last week, a source said.

Chesapeake stock closed Tuesday at $1.39, a decrease of 10.9%.

While down significantly percentagewise, the stock was only down 17 cents in terms of dollar amount.

However, the 5.5% convertible notes have long been busted and are not equity sensitive.

The notes were trading down after Chesapeake reported mixed second-quarter earnings.

The company missed on the bottom line with a loss per share of 10 cents versus expectations for earnings per share of 7 cents.

However, Chesapeake beat on the top line with revenue of $2.39 billion versus analyst expectations for revenue of $2.37 billion.

Whiting Petroleum’s 1.25% convertible notes due 2020 were also major volume movers during Tuesday’s session.

While Whiting Petroleum’s stock was also under pressure during Tuesday’s session after disappointing earnings, the convertible notes were largely holding, a market source said.

The 1.25% notes were changing hands at 95.5 during Tuesday’s session. They were previously trading at 96, a source said.

Whiting’s stock closed Tuesday at $9.79, a decrease of 8.08%.

Whiting missed on both the top and bottom lines in its second-quarter earnings report. Whiting reported a loss per share of 28 cents versus analyst expectations of a loss per share of 24 cents.

Revenue was $426.3 million versus analyst expectations for revenue of $450 million.

In addition to weak earnings, the barrel price of WTI crude oil for September delivery continued to sell off on Tuesday.

Crude oil futures settled at $53.63, a decrease of $1.06 or 1.94%, on Tuesday.

Mentioned in this article:

Alteryx Inc. NYSE: AYX

Chesapeake Energy Corp. NYSE: CHK

Ironwood Pharmaceuticals, Inc. Nasdaq: IRWD

Mesa Laboratories Inc. Nasdaq: MLAB

Snap Inc. NYSE: SNAP

Whiting Petroleum Corp. NYSE: WLL

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