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 and a $1 billion offering on deck for Tuesday.

In the first mandatory offering of 2023, Apollo Global Management Inc. plans to price $1 billion of three-year $50-par series A mandatory convertible preferred stock after the market close on Tuesday with price talk for a dividend of 6.5% to 7% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

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 were heard to have played to heavy demand, with coupon talk on Envista’s offering tightening 100 basis points during bookbuilding.

The rush of new deal activity came on a largely sideways day for the secondary space with equity indexes notching gains after a mixed start and Treasuries flat.

The Dow Jones industrial average closed Monday up 408 points, or 1.16%, the S&P 500 index closed up 0.9%, the Nasdaq Composite index closed up 0.61% and the Russell 2000 index closed up 0.07%.

Trading volume was anemic with market players focused on the new deals in the works.

There was $28 million in reported volume about one hour into the session and $300 million on the tape about one hour before the market close with few standout price movements to speak of.

Insmed Inc.’s 0.75% convertible notes due 2028 held the gains made after a post-earnings bounce late last week.

Envista in demand

Envista’s offering of $435 million of five-year convertible notes (Baa3) played to heavy demand with coupon talk tightening 100 bps during bookbuilding.

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

However, talk tightened to a coupon of 1% to 1.5% and an initial conversion premium of 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 initial price talk, a source said.

The cheapness of the deal, the captive audience in holders of its outstanding convertible notes, the expected investment-grade rating of the notes and the growth prospects of the company were all pointed to as driving demand.

“And it’s not a utility,” a source said.

The deal is coming as a refinancing with proceeds to 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 3½% 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.

Others pegged the deal as slightly cheaper although they still paled in comparison to the other deals in the market.

However, demand for the paper was decent with the deal coming as a refinancing and the name well known in the convertible universe, sources said.

Proceeds from the new offering 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.

Insmed holds gains

Insmed’s 0.75% convertible notes due 2028 were active during an otherwise ho-hum session with the notes holding on to the gains made in a post-earnings bump the previous week.

The 0.75% convertible notes continued to trade on an 88-handle.

They were changing hands at 88 versus a stock price of $22.08 in the late afternoon, according to a market source.

There was $8 million in reported volume.

Insmed stock traded to a low of $21.65 and a high of $22.17 before closing the day at $21.87, a decrease of 0.55%.

While Insmed stock was relatively flat after reporting earnings on Aug. 3, the convertible notes climbed about 3 points outright.

Mentioned in this article:

Insmed Inc. Nasdaq: INSM

Envista Holdings Corp. NYSE: ENV

Fluor Corp. NYSE: FLR

Hannon Armstrong Sustainable Infrastructure Capital Inc. NYSE: HASI

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