Morning Commentary: PagerDuty convertible notes hit the aftermarket, expand on debut

By Abigail W. Adams

Portland, Me., Oct. 11 – The convertibles secondary space was active early Wednesday as $350 million in new supply made its aftermarket debut.

PagerDuty Inc. priced $350 million of five-year convertible notes after the market close on Tuesday.

The new paper hit the aftermarket amid signs the rally in equity and Treasury markets that pared losses from the previous week were waning.

While the market repriced for an additional rate increase and a higher-for-longer rate environment on the heels of the Federal Open Market Committee’s Sept. 20 announcement, those bets have been adjusted over the past week on the heels of comments from Fed officials that indicated the rate hike campaign had run its course.

More volatility is expected with the meeting minute notes from the Fed’s Sept. 20 meeting due out at 2 p.m. ET and the Consumer Price Index report set for release on Thursday.

Equity indexes were strong out of the gate early Wednesday but turned mixed as the session progressed with the Dow Jones industrial average up 65 points, or 0.19%, the S&P 500 index up 0.16%, the Nasdaq Composite index up 0.48% and the Russell 2000 index down 0.24% shortly before 11 a.m. ET.

There was $176 million in reported volume about one hour into the session with PagerDuty’s new notes accounting for more than one-third of the total activity.

The new paper was strong on debut and made large outright and dollar-neutral gains.

PagerDuty active

PagerDuty priced $350 million of five-year convertible notes after the market close on Tuesday at par with a coupon of 1.5% and an initial conversion premium of 27.5%.

Pricing came at the midpoint of talk for a coupon of 1.25% to 1.75% and at the cheap end of talk for an initial conversion premium of 27.5% to 32.5%.

The new paper was strong out of the gate.

The notes traded as high as 102.125 early in the session and were changing hands at 101.5 versus a stock price of $21.33 early in the session.

The notes expanded about 1.75 points dollar neutral, a source said.

There was $77 million in reported volume.

PagerDuty’s stock was trading at $21.01, a decrease of 2.05%, shortly before 11 a.m. ET.

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