Morning Commentary: Convertible primary floodgates open; Hannon Armstrong, Fluor, Envista on deck

By Abigail W. Adams

Portland, Me., Aug. 7 – The rush of new deal activity market players have long awaited arrived on Monday with the convertible primary market set to price three deals totaling $1.285 billion after the market close.

Envista Holdings Corp., Fluor Corp., and Hannon Armstrong Sustainable Infrastructure Capital Inc. each launched refinancing deals prior to the open.

The offerings looked attractive based on underwriters’ assumptions and are expected to play to heavy demand, particularly from hedge accounts, with the vol. higher than the investment-grade paper that has flooded the market over the past year.

Envista looks cheap

Envista plans to price $435 million of five-year convertible notes after the market close on Monday with price talk for a coupon of 2% to 2.5% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of 200 basis points over SOFR and a 31% vol.

Using those assumptions, the deal looked about 3.5 points cheap at the midpoint of talk, a source said.

Proceeds will be used to fund the cash portion of the privately negotiated exchanges of a portion of the 2.375% convertible notes due 2025 for cash and shares.

Fluor crosses over

Fluor plans to price $500 million in six-year convertible notes after the market close on Monday with price talk for a coupon of 1.125% to 1.625% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of 200 bps over SOFR and a 36% vol.

Using those assumptions, the deal looked about 2.875 points cheap at the midpoint of talk.

Fluor is the latest example of a growing trend of issuers turning to the convertible market to refinance their straight debt.

Proceeds will be used to fund the tender offer for any and all outstanding 3˝% senior notes due 2024 (Ba1/BB+).

Hannon’s refinance

Hannon Armstrong plans to price $350 million of five-year green exchangeable notes after the market close on Monday with price talk for a coupon of 3.25% to 3.75% and an initial conversion premium of 22.5% to 27.5%.

The deal was heard to be in the market with assumptions of 350 bps over SOFR and a 40% vol.

Using those assumptions, the deal looked about 0.5 point cheap at the midpoint of talk, a source said.

Proceeds will be used to fund the repurchase of a portion of its 0% convertible notes due 2023 in privately negotiated transaction.

While Hannon’s latest offering did not look as cheap as the other deals in the market, its real value will be in the repurchase of the outstanding notes, a source said.

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