Morning Commentary: Shockwave Medical on deck; Air Transport prices, jumps on aftermarket debut

By Abigail W. Adams

Portland, Me., Aug. 10 – The convertible bond primary market continued to churn out the offerings on Thursday with one deal set to price after the market close after an overnight deal cleared the market post-close Wednesday.

Shockwave Medical Inc. plans to price $500 million in five-year convertible notes after the market close on Thursday.

The new paper looked cheap based on underwriters’ assumptions. However, some felt the credit spread was aggressive.

The offering comes after Air Transport Services Group Inc. priced $350 million of six-year convertible notes in an overnight on Wednesday.

While the wall-crossed offering was oversubscribed at the time of its launch, it modeled cheap based on underwriters’ assumptions and soared on its aftermarket debut with stock in the green on Thursday, a rarity among overnight deals.

Shockwave eyed

Shockwave Medical plans to price $500 million in five-year convertible notes after the market close on Thursday with price talk for a coupon of 1% to 1.5% and an initial conversion premium of 25% to 30%.

The deal was in the market with assumptions of 300 bps over SOFR and a 40% vol., according to a market source.

Using those assumptions, the deal looked about 3.5 points cheap at the midpoint of talk.

However, some felt the credit spread was aggressive.

The medical device company does have solid fundamentals with no outstanding debt, an $8 billion market cap and decent cash flow.

However, the company is still relatively young with its IPO in 2019.

Using a credit spread of 350 reduced the cheapness of the deal to about 2.5 points cheap at the midpoint of talk.

A credit spread of 400 bps reduced the cheapness to 1.375 points at the midpoint of talk.

Air Transport’s overnight

In a wall-crossed offering that was oversubscribed at the time of launch, Air Transport priced $350 million of six-year convertible notes after the market close on Wednesday at par with a coupon of 3.875% and an initial conversion premium of 42.5%.

Pricing came at the midpoint of talk for a coupon of 3.75% to 4% and at the cheap end of talk for an initial conversion premium of 42.5% to 45%.

The deal was in the market with assumptions of 450 bps over SOFR and a 36% vol., according to a market source.

Using those assumptions, the deal looked about 3.75 points cheap at the midpoint of talk, a source said.

The notes had a strong start in the aftermarket and were marked at 102.5 bid with stock flat shortly after the opening bell.

They were trading just shy of 104.5 versus a stock price of $23.04 about one hour into the session.

Air Transport stock was trading at $22.40, a decrease of 0.13%, shortly before 11 a.m. ET.

While overnight offerings typically destroy stock, the company’s repurchase of 5.4 million shares of common stock from the initial purchasers of the notes in privately negotiated transactions, the repurchase of shares from Amazon under an existing agreement helped stabilize the stock price.

The deal came as a refinancing with proceeds used to repurchase $204.5 million in principal of its 1.125% convertible notes due 2024 for $203.2 million in cash in privately negotiated transactions.

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