Morning Commentary: Tetra Tech convertible offering eyed; Akamai notes trade lower

By Abigail W. Adams

Portland, Me., Aug. 17 – The convertibles primary market continued to churn out offerings with one deal set to price after the market close on Thursday.

Tetra Tech Inc. plans to price $500 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 2.125% to 2.625% and an initial conversion premium of 22.5% to 27.5%.

The deal was heard to be in the market with assumptions of 200 basis points over SOFR and 28% vol., according to a market source.

Using those assumptions, the deal looked about 2.9 points cheap at the midpoint of talk.

However, some sources pegged assumptions as 225 bps over SOFR and a 27% vol.

Those assumptions dramatically altered the cheapness of the deal, which modeled about 1 point cheap at the midpoint of talk.

The wider credit spread made little difference but a 1% decrease in vol. tightened the pricing by almost 2 points.

“That will happen with low vol. names,” a source said.

Tetra Tech’s pricing using underwriters’ assumptions looked more attractive than Akamai Technologies Inc.’s and Workiva Inc.’s convertible notes offerings with Tetra Tech coming with a larger coupon.

Both Akamai’s and Workiva’s convertible notes carried coupons on a 1% handle and modeled about 1 point cheap.

The tight pricing contributed to their poor performance in the aftermarket with both notes trading below par and falling flat to contracting dollar-neutral, a source said.

Whie activity surrounding Akamai’s 1.125% convertible notes due 2029 slowed on Thursday, the notes fell further below par.

The 1.125% notes were changing hands at 99.375 versus a stock price of $101.83 early in the session, according to a market source.

There was $4 million in reported volume.

Akamai’s stock was trading at $101.55, a decrease of 0.13%, shortly before 11 a.m. ET.

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