Shift4 convertibles, Clarios mandatories on tap; Five9 gains continue; airlines active

By Abigail W. Adams

Portland, Me., July 20 – After a three-week hiatus, the convertibles primary market returned to action and launched two new deals on Tuesday.

Shift4 Payments Inc. plans to price $500 million of six-year convertible notes after the market close on Wednesday.

Clarios International Inc. plans to price $500 million of three-year $50-par mandatory convertible preferred stock on July 29.

Meanwhile, the secondary space saw an uptick of activity as equities rebounded from Monday’s bloodletting.

The Dow Jones industrial average closed the day up 550 points, or 1.62%, the S&P 500 index closed the day up 1.52%, the Nasdaq Composite finished up 1.57% and the Russell 2000 ended the day up 3.25%.

There was about $450 million on the tape heading into the market close.

Airlines remained active on Tuesday.

Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB), Spirit Airlines Inc.’s 1% convertible notes due 2026 and JetBlue Airways Corp.’s 0.5% convertible notes due 2026 remained active on Tuesday.

The notes were gaining on an outright basis as their underlying equity recovered. However, the notes also held onto the dollar-neutral expansions seen during Monday’s session.

Five9 Inc.’s 0.5% convertible notes due 2025 also remained active with the notes expanded upwards of 2 points since news broke about the company’s buyout by Zoom Video Communications Inc.

The calendar

After a three-week hiatus, the primary market returned to action with two deals on deck.

Shfit4 Payments plans to price $500 million of six-year convertible notes after the market close on Wednesday with price talk for a coupon of 0.5% to 1% and an initial conversion premium of 37.5% to 42.5%, according to a market source.

Goldman Sachs & Co. LLC (lead left), Citigroup Global Markets Inc and Credit Suisse Securities (USA) LLC are bookrunners for the Rule 144A offering, which carries a greenshoe of $75 million.

Clarios plans to price $500 million of three-year $50-par mandatory convertible preferred stock on July 29 a with price talk for a dividend of 5.75% to 6.25% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

The deal was heard to be in the market with assumptions of 300 basis points over Libor and a 27% to 30% vol. skew, a source said.

Using those assumptions, the deal looked 2.5 points cheap at the midpoint of talk.

The lead time on the deal is over a week due to the concurrent pricing of the company’s initial public offering of stock.

The Milwaukee-based car battery manufacturer is pricing its IPO of about $1.2 billion or 62 million shares on July 29.

There is also a concurrent private placement of $250 million in common stock.

The mandatory offering was most likely the result of limitations placed on how much the company can raise through its IPO, a source said.

By pricing a concurrent offering of mandatory convertible preferred shares, the company can sidestep Securities and Exchange Commission regulations that limit the amount that can be raised through an IPO and prevent a devaluation of shares that would result from too many shares pricing at once.

“This way they’re able to get all their financing done at once,” a source said.

Airlines active

Airlines remained active on Tuesday as travel and leisure stocks saw a strong rebound from Monday’s sell-off.

While the notes improved on an outright basis alongside stock, they maintained the dollar-neutral expansions seen during Monday’s session.

Southwest’s 1.25% convertible notes due 2025 rose about 6 points outright with stock up 6%.

They were changing hands just shy of 148 versus a stock price of $51.43 in the late afternoon.

There was more than $12 million in reported volume.

Southwest’s stock traded to a low of $48.56 and a high of $51.59 before closing the day at $51.43, a decrease of 6.04%.

Spirit’s 1% convertible notes due 2026 gained 1.625 points outright with stock up more than 6%.

The 1% notes were changing hands at 92 versus a stock price of $27.16 in the late afternoon.

There was about $10 million in reported volume.

Spirit’s stock traded to a low of $25.46 and a high of $27.23 before closing the day at $27.00, an increase of 6.22%.

JetBlue’s 0.5% convertible notes due 2026 were up a little more than 1 point outright with stock also up more than 6%.

The 0.5% convertible notes were changing hands just north of 97.125 versus a stock price of $15.40 in the late afternoon.

There was about $10 million in reported volume.

JetBlue’s stock traded to a low of $14.37 and a high of $15.49 before closing the day at $15.35, an increase of 6.6%.

While the convertible notes were unchanged on a dollar-neutral basis on Tuesday, they all expanded 0.5 point dollar-neutral in Monday’s sell-off.

Five9 gains continue

Five9’s 0.5% convertible notes due 2025 continued to gain in active trading following news of the company’s buyout.

The 0.5% notes were changing hands at 154.5 versus a stock price of $189.85 in the late afternoon.

There was about $11 million in reported volume.

The notes have expanded 2 points since Monday’s session, a source said.

Five9’s stock traded to a low of $185.12 and a high of $191.30 before closing the day at $189.80, an increase of 0.89%.

News broke on Monday that Zoom Video would acquire Five9 in a $14.7 billion all-stock transaction.

The convertible notes will remain outstanding following the transaction. They improved on the news with Zoom a better credit than Five9, a source said.

Mentioned in this article:

Five9 Inc. Nasdaq: FIVN

JetBlue Airways Corp. Nasdaq: JBLU

Shift4 Payments Inc. NYSE: FOUR

Southwest Airlines Co. NYSE: LUV

Spirit Airlines Inc. NYSE: SAVE

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