Morning Commentary: EQT, Snap convertible offerings eyed; American Eagle below par

By Abigail W. Adams

Portland, Me., April 23 – The convertibles primary market continued to roll out the overnight deals with one pricing after the market close on Wednesday and two more on deck.

EQT Corp. plans to price $350 million of six-year convertible notes and Snap Inc. plans to price $750 million of five-year convertible notes after the market close on Thursday.

Meanwhile, American Eagle Outfitters, Inc.’s newly priced 3.75% convertible notes due 2025 were below par in their secondary market debut.

EQT on tap

EQT plans to price $350 million of six-year convertible notes with price talk for a coupon of 1.75% to 2.25% and an initial conversion premium of 17.5% to 22.5%.

The deal was heard to be marketed with assumptions of 900 basis points over Libor and a 45% vol., according to a market source.

Using those assumptions, the deal modeled 2.92 points cheap at the midpoint of talk, a source said.

The credit ratings of the Pittsburgh-based natural gas production company were downgraded to junk in mid-February.

The company went through another round of downgrades in early April with S&P Global Ratings lowering the issue-level ratings of the company’s unsecured debt to BB- from BB+ and Moody’s Investors Service downgrading the corporate family credit rating to Ba3 from Ba1.

The ratings agency cited refinancing risk and weak commodity prices as reasons for the downgrade.

However, the natural gas producer’s stock recently rebounded and its preliminary earnings were better than expected, a source said.

Snap eyed

Snap plans to price $750 million of five-year convertible notes after the market close on Thursday with price talk for a yield of 0.25% to 0.75% and an initial conversion premium of 32.5% to 37.5%.

The deal was heard to be marketed with assumptions of 400 bps over Libor and a 40% vol., according to a market source.

Using those assumptions, the deal looked a little more than 3 points cheap at the midpoint of talk, a source said.

However, another source felt the 400 bps credit spread was too aggressive and pegged assumptions at 550 bps over Libor and a 45% vol.

Using those assumptions, the deal modeled about 1.625 points cheap at the midpoint of talk, the source said.

Snap’s 0.75% convertible notes due 2026 trade around the 550 bps level, the source said.

The new offering has a shorter maturity than the 2026 notes and should therefore have a slightly tighter spread.

However, the outstanding notes are a good benchmark to use, the source said.

With Snap’s new offering in the works, the company’s 0.75% notes were active and coming in after jumping the previous session.

The 0.75% notes were changing hands just shy of 101 with about $14.5 million on the tape early in the session.

Snap stock was $16.62, a decrease of 2.21%, shortly before 11 a.m. ET.

American Eagle below par

American Eagle’s newly priced 3.75% convertible notes due 2025 were below par with stock off early in the session.

American Eagle priced $400 million of five-year convertible notes after the market close on Wednesday at par with a coupon of 3.75% and an initial conversion premium of 30%.

Pricing came at the cheap end of talk for a coupon of 3.25% to 3.75% and at the midpoint of talk for an initial conversion premium of 27.5% to 32.5%, according to a market source.

The 3.75% notes traded as low as 98.25 soon after the opening bell. However, the majority of prints were between 99 and par, a market source said.

The notes were active with more than $47 million in reported volume about one hour into the session.

American Eagle stock traded down to $6.58 soon after the opening bell. However, stock recovered and was changing hands at $6.82, an increase of 1.41%, shortly before 11 a.m. ET.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.