Morning Commentary: New convertible notes from Atlassian, JPMorgan hit the market

By Abigail W. Adams

Portland, Me., April 25 – The convertibles primary market priced $1.45 billion in two deals after the market close on Tuesday.

Atlassian Corp. plc priced an upsized $850 million of five-year convertible notes at the cheap end of talk with a coupon of 0.625% and an initial conversion premium of 42.5%.

Price talk had been 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 initial size of the deal had been $750 million with a greenshoe of $112.5 million. The greenshoe was also upsized to $150 million.

“Surprisingly, there’s not heavy volume,” a market source said, with only $37 million bonds seen on the tape early in Wednesday’s session.

The new notes were seen trading down on their market debut alongside the stock.

The notes were at par pre-open with stock down 50 cents and traded down to 99¼ early in Wednesday’s session with stock down $2, a market source said.

The notes were trading in line dollar neutral, the source said.

The notes have a theoretical delta of 60% but will most likely trade with a delta of 50% to 55%.

However, the low trading volume is a sign the deal was tightly allocated.

The volume “is only half of what I thought it would be,” the source said. “It was probably chunky and put in good hands. The low volume is a sign it was well placed.”

JPMorgan Chase Financial Co. LLC priced $600 million of cash-settled equity-linked notes due 2023 linked to the common stock of Voya Financial, Inc. with a 0.25% coupon and a 30% initial conversion premium at par, according to a news release.

The notes came at the cheap end of price talk for a coupon of 0% to 0.25% and an initial conversion premium of 30% to 35%.

JPMorgan’s new 0.25% notes were seen trading up to 101 with about seven trades on the tape, a market source said.

The initial reference price will be determined after a five-day averaging period to begin on April 25. Voya stock was up early Wednesday to $53.14, an increase of 0.82%.

JPMorgan’s old 0.25% cash-settled equity-linked notes tied to Voya traded on Tuesday at 99.41, according to Trace data.

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