An untimely 2.7% fall in the stock on
Monday prompted the banks to delay
launching the one-day marketed offering
until Tuesday post-close.
Descartes rebounded 2.9% in Wednesday’s
session to close Nasdaq/TSX trading at
US$37.71/C$50.46.
Trading volumes totalled 1.6m/546,400
shares, a reversal of the 121,000/162,000
TYPICALûDAILYûmOW ûPOTENTIALLYûHIGHLIGHTINGûAû
US-centric placement.
“Demand can be a little more scarce,”
said one ECM banker, speaking generically
about cross-border stock sales. “On the
PERIPHERY ûITûCANûBEûDIFlCULTûTOûATTRACTû
interest from middle-market US accounts
that historically have not been around the
name.”
Descartes is covered by eight sell-side
RESEARCHûANALYSTS ûACCORDINGûTOû2ElNTIVûDATA û
and all but two are based in Canada.
As a global logistics company, Descartes
STANDSûTOûBENElTûFROMûSOUTHERNLYûEXPANSIONû
of its shareholder base.
The company, which last issued stock
publicly back in 2014 (at US$13.50), is using
proceeds to repay revolver borrowings
incurred on the purchase earlier this year of
MSR Customs, a provider of import-export
compliance solutions.SUMMIT INDUSTRIAL STOCK SALE AN
INTERNAL AFFAIRHaving recently collapsed an externally
managed corporate structure, SUMMIT
INDUSTRIAL INCOME REIT pushed into the market
overnight on Monday with an opportunistic
C$130m (US$98m) stock sale.
BMO Capital Markets conducted the all-
primary sale of 10.4m shares on a
bought-deal basis that were reoffered at
C$12.50 apiece, a 2.5% discount to last
sale. The bank sub-syndicated risk to asyndicate of eight Canadian banks that
split a 4% gross spread.
Summit Industrial shares fell 2% on
Tuesday post-pricing to C$12.57, trimming
year-to-date gains to 31.5%.
“The deal went extremely well,” a banker
involved in the transaction told IFR. “There
has been a lot of interest in REITs this year,
particularly multi-family and industrial
REITs.”
Summit Industrial, a serial issuer, is
using proceeds for general corporate
purposes, including potential debt
repayment.
At March 31, the REIT had C$102m drawn
on an operating revolving credit facility and
its debt leverage ratio stood at 47.9%, below
the 50% target.
In April, Summit Industrial shareholders
voted to collapse an externally managed
structure that paid Summit Asset
Management, the external management,Coupa Software, Q2 double-dip with
upsized CBs
US High-growth software companies generate outsized demandThere is no lack of demand for new convertible
bonds, we are told. And there are plenty of
issuers queuing up deals, we are also told.
Still, it has been a disappointing start to the
year, with year-to-date volumes of US$13.7bn
falling around 40% below this point in 2018.
Market volatility - both equity and credit -
have impeded capital formation, say bankers.
“It has been tough to find a day where
launching makes sense,” said one EQL banker.
“[Tuesday] was one of the first few good days in
a while.”
US stocks gained 2% on Tuesday on
expectations that the Fed could cut interest rates.
Regardless, the merits of convertible bonds to
technology companies are obvious, so much so
that many repeatedly turn to the asset class to
fund continued growth.
COUPA SOFTWARE, the cloud-based spending
management company, landed an upsized
US$700m from the sale of a seven-year CB on
Thursday, about a year-and-a-half after raising
US$200m on its CB debut.
Morgan Stanley, Goldman Sachs and Barclays
launched at US$500m before upsizing to
US$700m ahead of pricing at 0.125%, up 35%,
the aggressive ends of 0.125%-0.625% and
30%-35% talk.
“[There was] certainly no lack of demand,”
said one banker involved in the underwriting at
midday on Thursday ahead of pricing. “It has put
up great numbers. It’s a name investors love.”Coupa shares gained 0.9% on the marketing
to US$118.22.
Coupa used a portion of the proceeds on a
capped call to offset dilution to US$295.55, a
150% premium to reference, far higher than the
75%-100% typical.
Delta-hedging by counter-party banks to the
capped call can explain part of the reason for
such a strong performance, but not all of it.ME TOO
Q2, a provider of software for community banks,
returned to the CB market with its own upsized
US$275m, seven-year CB on Wednesday, also
a little more than a year after issuing a similarly
sized, five-year CB.
To balance out funding, the company opted to
sell 2.3m shares concurrently.
“They didn’t want to put too much debt on the
balance sheet,” explained one banker involved
in the underwriting. “All-equity would have been
too dilutive.”
JP Morgan, Morgan Stanley, Stifel and BMO
Capital Markets conducted one day of marketing
launched as US$200m and talked at a
0.75%–1.25% coupon and 25%–30% conversion
premium.
The banks upsized to US$275m with final
pricing of 0.75%, up 27.5% with the equity
placing providing the reference. The equity piece
was also upsized to 2.3m shares, from 2.15m,
priced at US$70.41.Q2 and Coupa join Chegg and Exact Sciences
as 2018 CB issuers that have returned with deals
this year, in addition to Fortive and Prospect
Capital.
Q2 is using the remaining proceeds for
general corporate purposes, including potential
acquisitions.
The company has been active on the
acquisition front, spending US$105m last
August on the purchase of lender and leasing
provider Cloud Lending and another US$26m
in December on a tuck-in acquisition of Gro
Solutions, a provider of digital onboarding
solutions.
Q2 recently inked cloud deals with a billion-
dollar Texas bank that is an existing customer
and a new, US$25bn bank.
Still, the acquisitions are dilutive to near-term
earnings.
Because of investments and the costs of
integrating the new businesses, Q2 saw adjusted
Ebitda fall to US$263,000 in Q1, down from
US$5m a year ago and US$1.7m consensus,
on revenue of US$71.3m, above the US$70.6m
expected by analysts, according to Refinitiv data.
Q2 management maintained full-year 2019
Ebitda guidance at US$20m–$22m while
increasing expected revenue to US$308.8m–
$311.8m, but indicated that the bulk of cash
flows would be generated in the second half of
the year.
Stephen Lacey