HCI convertible notes price; Palo Alto active pre-earnings; Avaya notes trade lower

By Abigail W. Adams

Portland, Me., May 19 – The convertibles primary market reared its head on a brutal week for risk assets with one new offering pricing.

HCI Group Inc. priced $150 million of convertible notes due 2042 before the market open on Thursday.

Many were surprised to see the deal, which launched after Wednesday’s stock market bloodbath.

However, the small offering was wall-crossed.

While the new paper did not see much activity in the secondary space, the notes were up on an outright and dollar-neutral basis on a volatile day for the company’s stock.

HCI was the first deal to price in May with the convertibles primary market marking its lowest volume year for new deal activity since 2016.

However, there are several offerings in the pipeline with issuers just waiting for some market stability, sources said.

The stability did not come on Thursday which was a volatile session for equities.

Equity indexes wavered between gains and losses before closing the day mixed.

The Dow Jones industrial average closed the day down 237 points or 0.75%, the S&P 500 index closed down 0.58%, and the Nasdaq Composite index closed down 0.26%.

The Russell 2000 index was the only index to remain in the green although just barely with the index closing up 0.08%.

While markets were choppy on Thursday, the tone in the convertibles secondary space improved after Wednesday’s session left many hiding underneath their desks.

While the Nasdaq closed the day in negative territory, several badly battered growth stocks remained in positive territory as the 10-year Treasury yield continued to pull back from recent heights.

There was $68 million in reported volume about one hour after the market open and $590 million on the tape at the market close.

Palo Alto Networks Inc.’s 0.375% convertible notes due 2025 were in focus as market players positioned themselves ahead of the cybersecurity company’s earnings report, which was announced after the market close.

Block Inc.’s (formerly known as Square Inc.) 0.125% convertible notes due 2025 also saw renewed focus with the notes gaining outright on a strong day for the company’s stock.

Avaya Holdings Corp.’s 2.25% convertibles due June 15, 2023 continued to “melt down” in the secondary space with market players questioning the company’s ability to pay back the short-duration notes at maturity.

HCI prices, trades up

HCI broke the convertibles primary market’s dry spell and priced $150 million of convertible notes due 2042 before the market open on Thursday at the cheap end of talk with a coupon of 4.75% and an initial conversion premium of 25%.

Price talk was for a coupon of 4.25% to 4.75% and an initial conversion premium of 25% to 30%.

The deal included a forward stock purchase agreement to help facilitate hedge players.

While the small, wall-crossed deal was tightly allocated with little activity in the secondary space, the notes were trading above their issue price despite a volatile day for the company’s stock.

The 4.75% notes were holding at par early in the session as the company’s stock was deep in the red.

They printed at 101.75 in the afternoon as stock turned positive.

HCI’s stock traded to a low of $59.96 and a high of $67.51 before closing the day at $66.18, an increase of 2.72%.

Palo Alto active

Palo Alto’s 0.375% convertible notes due 2025 were in focus on Thursday as market players position themselves ahead of the cybersecurity company’s earnings report.

The notes were down about 2 points outright with stock off about 0.51%.

They were changing hands at 153.5 versus a stock price of $436.53 in the late afternoon.

The notes were moving in line dollar-neutral, a source said.

There was $18 million in reported volume.

Palo Alto’s stock traded to a high of $444.43 and a low of $421.55 before closing the day at $436.37, a decrease of 0.51%.

However, stock surged 11% in afterhours trading after the company reported earnings.

Block gains

Block’s 0.125% convertible notes due 2025 were on the rise on an outright basis on a strong day for the fintech company’s stock.

The 0.125% notes gained 3.5 points outright with stock up more than 6%.

The notes were changing hands at 108.75 versus a stock price of $88.61 in the late afternoon.

However, the notes were moving in line on a dollar-neutral basis.

There was $12 million in reported volume.

Block’s stock traded to a high of $89.92 and a low of $82.08 before closing the day at $87.19, an increase of 6.26%.

The fintech company’s stock hit a 52-week low of $65.10 the previous week. However, positive earnings from fellow convertibles issuer Affirm Holdings Inc. and a positive reaction to the company’s investor day held on Wednesday helped lift the stock.

Avaya meltdown continues

Avaya Holdings’ 2.25% convertibles due June 15, 2023 continued “to melt down” on Thursday, a source said, with the notes shaving off another 2 points despite a green day for stock.

The 2.25% notes were changing hands at 85.5 versus a stock price of $4.79 early in the session.

They were marked at 84 bid, 84.5 offered in the late afternoon.

The notes closed the day with a yield of 19.37%.

There was $12 million in reported volume.

Avaya’s stock traded to a low of $4.75 and a high of $5.22 before closing the day at $5.04, an increase of 2.02%.

The cloud communications technology company’s short-duration 2.25% notes have tumbled about 25 points since January as stock tanked 77%.

The company recently revised its third-quarter guidance to well below analyst expectations.

Holders are beginning to show concern about the company’s ability to pay off the $350 million issue at maturity, a source said.

Mentioned in this article:

Avaya Holdings Corp. NYSE: AVYA

Block Inc. NYSE: SQ

HCI Group Inc. NYSE: HCI

Palo Alto Networks Inc. Nasdaq: PANW

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