Atlassian deal looks rich; JPMorgan notes on tap; Aceto tanks; Trinity Industries active

By Abigail W. Adams

Portland, Me., April 24 – The convertibles primary market plans to price $1.35 billion over two deals after the market close on Tuesday, but neither deal is garnering much excitement in the secondary market, sources said.

Atlassian Corp. plc plans to price $750 million of five-year convertible notes with talk for a coupon of 0.125% to 0.625% and an initial conversion premium of 42.5% to 47.5%, according to a market source.

The pricing leaves the secondary market with little upside potential, a market source said. The pricing is “really pushing the envelope,” another source said. “I wouldn’t be surprised if this is the deal that forces other deals to be priced more attractively.”

JPMorgan Chase Financial Co. LLC plans to price $600 million of cash-settled equity-linked notes tied to Voya Financial Inc. stock with price talk for a coupon of 0% to 0.25% and an initial conversion premium of 30% to 35%, according to a market source.

“Another one?” a market source said.

The deal is JPMorgan’s second offering of cash-settled equity-linked notes tied to Voya Financial and will be the fourth issuance of cash-settled equity-linked notes tied Voya in the market.

Tuesday marked a brutal day for equities with the Dow Jones industrial average closing the session down 424 points and the 10-year Treasury note crossing the 3% yield benchmark for the first time since 2014.

With the Treasury yield on the rise, the low coupons of new deals may be coming to an end, sources said.

As the primary market prepares new paper, Aceto Corp.’s 2% convertible notes due 2020 were among the major volume movers of the convertibles space.

The notes have dropped more than 30 points since April 18 when the Port Washington, N.Y.-based pharmaceutical company announced its Feb. 1 guidance could no longer be relied on, its chief financial officer resigned and a strategic review to consider the sale of a business segment or possible merger was underway.

Trinity Industries, Inc.’s 3.875% convertible notes due 2036 were also in focus on Tuesday after the diversified industrial company announced it would call the notes on June 1.

Atlassian deal pushes it

Underwriters are “pushing the envelope” with the Atlassian deal, a market source said.

The San Francisco-based developer of collaborative software programs plans to price $750 million of five-year convertible notes after the market close.

The deal comes with a call spread.

The offering is being marketed with a credit spread of 130 basis points and a 39% vol., according to market sources. The deal looks rich, a market source said.

“The spread assumption looks way too tight,” a market source said. With a credit spread of 200 bps, fair value would model out to 98.875, the source said.

Using a credit spread of 100 bps a 38% vol. the deal models out to 100.5 at the mid-point of talk, another source said.

The deal appears to be “priced to perfection,” and was seen at par in the gray market, another source said. The pricing leaves little upside room for the secondary market, the source said.

Atlassian is a great company to issue a convertible bond with good operating margins and a potentially overpriced stock, a market source said.

The pricing, however, “is butt-ugly,” with the yield of the 10-year Treasury note making it even uglier, the source said.

However, for convertible arbitrage players, Atlassian’s deal is a big one, a market source said.

“It all has to do with fundamental demand at the end of the day,” the source said.

More Voya

JPMorgan plans to price its second offering of cash-settled equity-linked notes tied to Voya Financial after the market close.

It is JPMorgan’s second offering of cash-settled equity-linked notes tied to Voya Financial and will be the fourth issuance of cash-settled equity-linked notes tied Voya in the market.

JPMorgan was the first to price cash-settled equity-linked notes tied to Voya but was soon followed by Deutsche Bank AG, London Branch and BofA Finance LLC.

Banks have been monetizing the Voya warrants distributed after ING Group’s divestment of the company, market sources said.

As JPMorgan prepares new notes, the existing 0.25% cash-settled notes due 2023 were active during Tuesday’s session with more than $14 million bonds traded.

The 0.25% notes were trading just north of par early in Tuesday’s session but dropped below par later in the afternoon. They were seen trading at 99.41 versus an equity price of $52.32.

The 0.25% notes have spent the past several weeks below par, according to Trace data. The notes traded down after Deutsche Bank priced their offering of cash-settled notes tied to Voya, which carried partial takeover protection.

JPMorgan’s first issuance of cash-settled notes did not carry takeover protection. JPMorgan’s latest deal does. Voya has long been rumored to be a potential takeover target.

Aceto tanks

Aceto’s 2% convertible notes due 2020 were major volume movers during Tuesday’s session with the notes trading in a range of 55 to 60.

Aceto stock traded to a low of $2.32 and a high of $2.48 before closing Tuesday at $2.47, an increase of 8.33%.

The 2% notes have dropped more than 30 points since April 18 when the company announced an onslaught of negative financial news. The pharmaceutical company’s stock also dropped more than 64%.

Prior to the April 18 announcement, the 2% notes were trading in a range of 87 to 88 with stock north of $7.00.

Aceto announced after the market close April 18 that the company’s chief financial officer resigned, its guidance issued in February could no longer be relied on and the company was exploring strategic alternatives such as the sale of a business segment or merger.

Aceto was also issued a subpoena on Monday from the U.S. Department of Justice in relation to the marketing and pricing practices of the generic drug industry.

Trinity active

Trinity’s soon-to-be redeemed 3.875% convertible notes due 2036 were active and trading around parity during Tuesday’s session with more than $24 million bonds on the tape.

The notes traded to a low of 131.75 and a high of 139 before ending the day at 132, according to Trace data.

Trinity stock traded to a low of $31.49 and a high of $33.12 before ending the day at $31.75, an increase of 0.32%.

Trinity announced on Monday that it was calling the outstanding $449 million of the 3.875% notes on June 1. The notes will be convertible until May 30 with a conversion rate of 41.439 shares.

Trinity will report first-quarter earnings after the market close on Wednesday.

Mentioned in this article:

Aceto Corp. Nasdaq: ACET

Atlassian Corp. plc Nasdaq: TEAM

Trinity Industries, Inc. NYSE: TRN

Voya Financial Inc. NYSE: VOYA

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