PagerDuty convertibles hit aftermarket, expand on debut; medical device companies drop

By Abigail W. Adams

Portland, Me., Oct. 11 – The convertibles primary market was dormant on Wednesday after one deal cleared the market the previous session.

PagerDuty Inc.’s $350 million offering is expected to be the sole deal of the week with markets volatile surrounding macro data and earnings season kicking off on Friday.

Meanwhile, the convertibles secondary space saw an active session as PagerDuty’s new convertible notes made their aftermarket debut.

The convertible notes hit the aftermarket on another topsy-turvy day for markets as the rally in equities and Treasuries that pared losses from the previous week faded.

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 after comments from Fed officials that indicated the rate hike campaign had run its course.

The market was again showing indecision about the rate horizon after the release of the Fed’s Sept. 20 meeting minute notes and on the eve of the Consumer Price Index report set for release on Thursday.

Equity indexes were strong out of the gate but turned mixed as the session progressed with the Dow Jones industrial average closing Wednesday up 66 points, or 0.19%, the S&P 500 index closing up 0.43%, the Nasdaq Composite index closing up 0.71% and the Russell 2000 index closing down 0.20%.

There was $176 million in reported volume about one hour into the session and $590 million on the tape about one hour before the market close with PagerDuty’s new notes dominating activity.

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

Outside of the new paper, the secondary space was largely quiet with trading volume concentrated in high-grade issues.

Seagate HDD Cayman’s 3.5% exchangeable notes due 2028 continued to see heavy volume with the notes set for inclusion in the Refinitiv convertible indices on Thursday.

While trading volumes were light, several convertible issuers from medical device companies saw their equity crushed on Wednesday as analysts predict the widespread adoption of weight loss drugs will be a headwind for the industry.

Shockwave Medical Inc.’s recently priced 1% convertible notes due 2028 sank back to a 93-handle and contracted dollar-neutral with stock off almost 10% early in the session.

PagerDuty expands

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 saw a strong aftermarket debut.

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 about one hour after the opening bell.

The notes dropped back down to a par handle and were trading at 100.25 versus a stock price of $20.74 in the late afternoon.

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

There was $115 million in reported volume.

PagerDuty’s new offering came as a refinancing with $224.5 million in proceeds used to repurchase $230 million in principal of its outstanding 1.25% convertible notes due 2025 in cash.

The buyback price appeared to be 97.25, a source said.

PagerDuty’s stock traded to a low of $20.68 and a high of $21.56 before closing at $20.79, a decrease of 3.08%.

Seagate active

Seagate’s 3.5% exchangeable notes due 2028 remained active although with little movement in price on the cusp of the notes’ addition to the Refinitiv Convertible Indices.

The 3.5% notes gained about 1 point outright with stock up 3%.

They were trading at 105.5 versus a stock price of $68.92 in the late afternoon, according to a market source.

“Nothing doing there; they’re just moving with stock,” a source said.

There was $23 million in reported volume.

Seagate’s stock traded to a low of $66.76 and a high of $69.64 before closing at $69.56, up 4.48%.

The activity in the name was due to their addition to the Refinitiv Convertible Indices on Thursday, a source said.

Medical Devices clocked

While trading volumes were light, convertible issuers from the medical device sector saw their stocks crushed as analyst predict weight loss drugs will be a headwind for the industry.

Shockwave’s recently priced 1% convertible notes due 2028 fell 4 points outright with stock off as much as 10% early in the session.

The convertibles were changing hands at 93.75 versus a stock price of $202.12 in early trade.

The notes contracted about 0.75 point dollar-neutral on the move down.

Shockwave’s stock traded to a low of $189.36 and a high of $210.98 before closing at $200.93, a decrease of 4.74%.

Shockwave was one of several medical device and dialysis companies that took a hit on Wednesday after weight loss drug Ozempic showed promise as a treatment for Kidney disease.

Shockwave’s 1% notes have been volatile since the $750 million issue priced in early August.

While strong performers on debut, the notes sank as low as 93 amid the repricing in markets in late September/early October.

Mentioned in this article:

PagerDuty, Inc. NYSE: PD

Seagate Technology Holdings plc Nasdaq: STX

Shockwave Medical Inc. Nasdaq: SWAV

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