Market eyes Boingo, Apollo Commercial convertible notes; technology names active

By Abigail W. Adams

Portland, Me., Oct. 2 – The primary market was active at the launch of the new quarter with $375 million in two deals set to price after the market close.

Boingo Wireless, Inc. planned to price $175 million of five-year convertible notes after the market close on Tuesday.

The deal looked cheap based on underwriters’ assumptions, sources said.

In a deal launched prior to the market open, Apollo Commercial Real Estate Finance, Inc. priced $200 million of five-year convertible notes after the market close at the cheap end of talk with an issue price of 98.5.

The deal from the serial issuer of convertible notes looked to be fair value. While some described the deal as “boring,” others said it was a good substitute for a fixed income instrument.

Meanwhile, trading volume remained light in the secondary space with $30 million on the tape early in the session and about $300 million on the tape shortly before market close.

Tech names were the major volume movers of the day, which sources attributed to accounts making room for new paper.

Western Digital Corp.’s 1.5% convertible notes due 2024, Akamai Technologies Inc.’s 0.125% convertible notes due 2025 and Atlassian Corp.’s 0.625% convertible notes due 2023 were active but trading largely sideways, sources said.

Boingo looks cheap

Boingo planned to price $175 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.75% to 1.25% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

Underwriters were marketing the deal with a credit spread of 350 basis points over Libor and a 40% vol., sources said.

Sources pegged the deal between 1.5 points and 2 points cheap at the midpoint of talk.

The deal from the mobile internet services provider carries a wider credit spread than many of the software deals that have priced over the past year.

The more conservative credit spread is appropriate for Boingo, a market source said.

The company has had negative cash flow for the past two quarters and while EBITDA is improving “it’s not great,” a source said.

The stock is also near its 52-week peak of $35 after trading around $22 in August.

With the recent run, Boingo’s stock price may not hold up as well as other tech names, the source said.

However, other sources were impressed with the company’s management and business model.

While initially skeptical due to the impact 5G will have on wireless providers, Boingo has carved a nice niche for itself with carrier offload work, a market source said.

“Their business has a lot of potential,” the source said.

The borrow on the stock is good and the deal is expected to do well, sources said.

Apollo prices

Apollo priced $200 million of five-year convertible notes after the market close on Tuesday with a coupon of 5.375%, an initial conversion premium of 10% and a reoffer price of 98.5, according to a company press release.

Pricing came in line with price talk for a fixed coupon of 5.375% and fixed initial conversion premium of 10% and at the cheap end of talk for an issue price of 98.5 to 99, according to a market source.

Underwriters were marketing the deal with a credit spread of 275 bps over Libor and an 11% vol., sources said.

The deal models out to 99, making it fair value at the midpoint of issue price talk.

There was nothing exciting about the deal, “but it’s a REIT,” a market source said.

With a very small likelihood of getting “an equity pop,” the paper is more of a substitute for fixed income instruments, another source said.

There is little likelihood of getting more than par at the notes’ maturity. However, it is convenient if there are concerns about the market, a source said.

In portfolios that have a lot of vol., the paper makes sense for its stability, the source said.

Apollo is a repeat issuer of convertible notes and priced a $115 million add-on to its 4.75% convertible notes due 2022 in November 2017 at 100.5, lifting the outstanding amount to $345 million.

The 4.75% notes initially priced in August 2017 at 99. They most recently changed hands at 100.25, according to Trace data.

Apollo’s 5.5% convertible notes due 2019 have about $50 million outstanding and last traded in late September at 107.5, according to Trace data.

Proceeds from the new issue may be used to repurchase, redeem or exchange the company’s outstanding senior notes and convertible bonds.

Volume leaders

Tech names were the volume leaders on a slow day in the secondary market with accounts making room for new paper. However, the trading activity was largely sideways, sources said.

Western Digital’s 1.5% convertible notes due 2024 were volume leaders with more than $18 million of the bonds on the tape by late afternoon.

The notes were seen trading at 92.46 versus an equity price of $58.51 in the mid-afternoon, according to a market source.

While stock traded up to $59.28 during Tuesday’s session it closed the day at $57.72, a decrease of 0.52%.

The notes have largely traded on a 92 handle since mid-September when stock sank on an analyst downgrade.

Akamai’s 0.125% convertible notes due 2025 were also active and down about 1.5 points outright.

The notes were seen trading at 95.825 versus an equity price of $70.12 in the mid-afternoon with about $11 million of the bonds on the tape.

The notes were largely unchanged dollar-neutral, a source said.

Akamai stock closed Tuesday at $69.41, a decrease of 2.96%.

Atlassian’s 0.625% convertible notes due 2023 were also down about 1.5 points outright but were unchanged dollar-neutral.

The 0.625% notes were seen trading at 129 versus a stock price of $94.53. Atlassian stock closed Tuesday at $93.60, a decrease of 2.21%.

Mentioned in this article:

Akamai Technologies Inc. Nasdaq: AKAM

Apollo Commercial Real Estate Finance, Inc. NYSE: ARI

Atlassian Corp. Nasdaq: TEAM

Boingo Wireless, Inc. Nasdaq: WIFI

Western Digital Corp. Nasdaq: WDC

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