Apollo mandatories on deck; Fluor, Envista gain on debut; Hannon down outright, flat on swap

By Abigail W. Adams

Portland, Me., Aug. 8 – The convertible primary and secondary markets were hopping on Tuesday with one $1 billion offering set to price after the market close and $1.285 billion in new supply making aftermarket debuts.

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.

The deal was heard to have played to solid demand and will claim the title of the first completed mandatory convertible offering of the year.

SVB Financial Group’s $500 million offering of mandatory convertible preferred stock on March 9 was the first attempted mandatory offering of the year.

It was unsuccessful.

Meanwhile, it was a busy day in the convertible secondary space as new paper from Envista Holdings Corp., Fluor Corp. and Hannon Armstrong Sustainable Infrastructure Capital Inc. made their aftermarket debuts.

The new paper hit the market on a heavy day for equities with a Moody’s Investors Service downgrade of 10 small and midsize banks reigniting concerns about the health of the banking system.

Equity indexes each sank more than 1% at the open; however, buyers emerged as the session progressed with indexes paring their losses to close well off the lows of the day.

The Dow Jones industrial average closed Tuesday down 159 points, or 0.45%, the S&P 500 index closed down 0.42%, the Nasdaq Composite index closed down 0.79% and the Russell 2000 index closed down 0.59%.

There was $640 million in reported volume about one hour before the market close with the new paper accounting for about 40% of the total activity in the space.

While a weak day for the market, the new paper was holding up well with new bonds from Envista and Fluor trading up on an outright and dollar-neutral basis.

Hannon Armstrong’s exchangeables were weak on an outright basis but largely flat dollar-neutral.

Outside of the new paper, several names were active as earnings-related volatility and topical news sparked large price movements.

DISH Network Corp.’s convertible notes (Caa2/CCC-) made large gains on news DISH Network would merge with EchoStar in an all-stock transaction.

Apollo eyed

Apollo Global Management plans to price an offering for $1 billion of three-year $50-par series A mandatory convertible preferred stock (Baa1/BBB/BBB) 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%.

The deal was heard to be in the market with a credit spread of 175 basis points over SOFR and a 28% to 30% vol. skew.

Using those assumptions, the deal looked 1 to 1.5 points cheap at the midpoint of talk, a source said.

The deal is expected to play to strong demand with the offering the first mandatory of the year and the yield and yield spread attractive with the common stock yielding about 2%, a source said.

However, the current high-rate environment takes some juice out of the offering.

“If you believe rates are coming down in the next year to year and a half, these will do well,” a source said.

Envista expands

Envista Holdings priced $435 million of five-year convertible notes (Baa3) after the market close on Monday at par with a coupon of 1.75% and an initial conversion premium of 32.5%.

Price came wide of tightened talk for a coupon of 1% to 1.5% but on top of revised talk for an initial conversion premium of 32.5%

Initial price talk was for a coupon of 2% to 2.5% and an initial conversion premium of 27.5% to 32.5%.

The new paper was performing well despite the heaviness in the market.

The 1.75% notes were changing hands in the 100.125 to 100.75 context with stock off early in the session.

They were trading at 100.125 versus a stock price of $34.44 in the late afternoon.

They expanded about 0.75 point to 1 point dollar-neutral, a source said.

There was $113 million in reported volume.

Envista stock traded to a low of $53.11 and a high of $54.79 before closing the day at $54.65, a decrease of 1.39%.

Fluor strong

Fluor priced $500 million of six-year convertible notes after the market close on Monday at par at the rich end of talk with a coupon of 1.125% and an initial conversion premium of 32.5%.

Price talk was for a coupon of 1.125% to 1.625% and an initial conversion premium of 27.5% to 32.5%.

While the broader market was weak, Fluor’s new paper was strong with the notes trading as high as 101.125 out of the gate.

They were marked at 100.5 bid, 101 offered with stock flat about one hour into the session and continued to gain outright as stock gained steam into the close.

The notes were trading at 102.75 versus a stock price of $35.10 in the late afternoon.

They expanded about 1 point dollar-neutral, a source said.

There was $117 million in reported volume.

Fluor stock traded to a low of $34.10 and a high of $35.58 before closing the day at $35.39, an increase of 3.36%.

Hannon down, flat on swap

HAT Holdings I LLC and HAT Holdings II LLC priced $350 million of five-year green notes exchangeable for Hannon Armstrong stock after the market close on Monday at par with a coupon of 3.75% and an initial conversion premium of 25%.

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 22.5% to 27.5%, according to a market source.

The notes were weak out of the gate with the first print 99.

While they traded up to par as stock regained some footing, they were marked at 99.25 bid, 99.5 offered about one hour into the session.

They continued to move dollar-neutral with the notes trading just shy of 99 versus a stock price of $21.60 in the late afternoon.

While down on an outright basis, the notes were moving inline dollar-neutral, a source said.

Hannon Armstrong stock traded to a low of $21.31 and a high of $21.81 before closing the day at $21.78, an increase of 0.32%.

DISH jumps

While it was a new paper centric day in the secondary space, topical news pushed DISH into the spotlight with its convertible notes making large gains on news DISH and EchoStar would merge in an all-stock transaction.

DISH’s 0% convertible notes jumped 7 points outright with stock up 9%.

They were changing hands at 65.75 versus a stock price of $8.33 in the late afternoon, according to a market source.

There was $27 million in reported volume.

DISH’s 3.375% convertible notes due 2026 jumped 6 points outright.

They were changing hands at 59.625 versus a stock price of $8.34 in the late afternoon.

There was $11 million in reported volume.

DISH’s short-duration 2.375% convertible notes due March 15, 2024 jumped 3 points outright.

The notes, which trade for their yield, were changing hands at 95.5 in the late afternoon.

The yield was about 10.375%.

There was $4 million in reported volume.

DISH stock traded to a low of $7.53 and a high of $8.46 before closing the day at $8.37, an increase of 9.55%.

DISH’s capital structure surged following news the company would combine with EchoStar in an all-stock transactions.

Charlie Ergen is co-founder and co-chair of both EchoStar and DISH and the controlling shareholder of both companies.

According to the terms of the deal, EchoStar shareholders will receive 2.85 shares of DISH class A common stock for each share of EchoStar class A, C or D common stock and 2.85 shares of DISH class B common stock for each share of EchoStar class B common stock.

The news was welcomed by investors that have been questioning the ability of DISH to refinance its hefty debt load with 2024 maturities looming.

The transaction will give the company a greater equity cushion, a source said.

Mentioned in this article:

Apollo Global Management Inc. NYSE: APO

DISH Network Corp. Nasdaq: DISH

Envista Holdings Corp. NYSE: ENV

Fluor Corp. NYSE: FLR

Hannon Armstrong Sustainable Infrastructure Capital Inc. NYSE: HASI

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