Kite Realty, South Jersey Industries on tap; Ford convertible notes volatile on debut

By Abigail W. Adams

Portland, Me., March 17 – New deal activity continued at a rapid pace in the convertibles market with two deals totaling $475 million on deck for after the market close and five deals totaling $3.01 billion making their aftermarket debut.

Kite Realty Group Trust plans to price $175 million of six-year exchangeable notes and South Jersey Industries Inc. plans to sell an offering of $300 million, or 6 million $50-par equity units, after the market close on Wednesday.

Meanwhile, new paper from Ford Motor Co., Rapid7 Inc., IMAX Corp., Centennial Resource Development Inc. and Oil States International Inc. hit the aftermarket on a volatile day for equities with all eyes on the Federal Reserve’s afternoon announcement.

While the S&P 500 index and Nasdaq composite launched the day in the red, both closed in the green.

Equities surged after Federal Reserve chairman Jerome Powell eased the market’s concerns about rising inflation and interest rates.

New paper from Rapid7 and IMAX was strong on debut. While new paper from Ford launched the day below par, it turned around alongside the broader market and closed the day with outright and dollar-neutral gains.

However, Centennial Resource’s new paper struggled below par in the aftermarket.

Kite Realty eyed

Kite Realty plans to price $175 million of six-year exchangeable notes (Baa3) after the market close on Wednesday with price talk for a coupon of 0.25% to 0.75% and an initial exchange premium of 25% to 35%, according to a market source.

The notes will be issued by Kite Realty Group LP and exchangeable for Kite Realty Group shares.

The deal was heard to be in the market with assumptions of 200 basis points over Libor and a 33% vol., a source said.

Using those assumptions, the deal looked 0.63 point cheap at the midpoint of talk.

The offering is rated investment grade. However, the tight pricing was a surprise to some sources with REITs typically pricing wider, a source said.

South Jersey looks cheap

South Jersey Industries plans to price $300 million, or 6 million $50-par equity units, after the market close on Wednesday with price talk for a yield of 8.25% to 8.75% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

The deal was in the market with assumptions of 125 bps over Libor and a 35% to 32% vol. skew, according to a market source.

Using those assumptions, the deal looked 0.8 point cheap at the midpoint of talk.

Concurrently, the company plans to price a secondary offering of $5 million shares of common stock.

The company’s stock got crushed on the eve of the new offering.

South Jersey’s stock closed the day at $22.50, a decrease of 19.12%.

Ford volatile

Ford priced $2 billion of five-year convertible notes (Ba2/BB+/BB+) after the market close on Tuesday at par with a coupon of 0% and an initial conversion premium of 40%.

Pricing came in line with talk for a fixed coupon of 0% and at the cheap end of talk for an initial conversion premium of 40% to 45%, according to a market source.

The new paper saw heavy volume. “It’s also heavy in terms of price,” a source said early in the session.

The 0% notes traded to a low of 99 and were stuck in a 99.5 to par range shortly before 11 a.m. ET.

However, they turned around alongside the broader markets following Powell’s press conference.

The notes were changing hands at 100.25 to 100.75 in the late afternoon.

They expanded 0.25 to 0.5 point dollar-neutral, a source said.

Ford’s stock traded to a low of $12.22 and a high of $12.70 before closing the day at $12.69, an increase of 1.6%.

IMAX gains

IMAX sold $200 million of five-year convertible notes after the market close on Tuesday at par with a coupon of 0.5% and an initial conversion premium of 35%, according to a company news release.

Pricing came at the rich end of talk for a coupon of 0.5% to 1% and an initial conversion premium of 30% to 35%, according to a market source.

The new paper was strong on debut.

It traded as high as 103 with stock spiking up soon after the opening bell and settled between 101 to 101.5 about one hour into the session.

The notes were again on the rise alongside the broader market following Powell’s press conference.

They traded up to 102.5 an outright basis in the late afternoon.

The notes expanded upwards of 2 points dollar-neutral, a source said.

IMAX’s stock traded to a low of $21.14 and a high of $22.21 before closing the day at $21.24, a decrease of 0.28%.

Rapid7 upsizes

Rapid7 brought an upsized $525 million, from $500 million, of six-year convertible notes after the market close on Tuesday at par with a coupon of 0.25% and an initial conversion premium of 30%.

Pricing came at the cheap end of talk for a coupon of 0% to 0.25% and an initial conversion premium of 30% to 35%, according to a market source.

The new paper was performing well on debut.

It was trading between 100.5 and 101 on an outright basis with stock off about 1% early in the session.

However, the notes came in as stock continued to trade off into the afternoon.

The notes stood poised to close the day unchanged dollar-neutral, a source said.

Rapid7’s stock traded to a high of $80.72 and a low of $76.29 before closing the day at $79.00, a decrease of 0.65%.

Centennial lags

Centennial Resource priced $150 million of seven-year exchangeable notes after the market close on Tuesday at par with a coupon of 3.25% and an initial exchange premium of 30%.

Pricing came at the cheap end of talk for a coupon of 2.75% to 3.25% and an initial exchange premium of 30% to 35%, according to a market source.

The notes were stuck below par in the aftermarket with holders looking for bids, a source said.

Centennial’s stock traded to a high of $4.73 and a low of $4.41 before closing the day at $4.64, a decrease of 3.93%.

Oil States wall-crossed

Oil States International priced $135 million of five-year convertible notes after the market close on Tuesday at par with a coupon of 4.75% and an initial conversion premium of 25%.

Pricing came at the cheap end of talk for a coupon of 4.25% to 4.75% and an initial conversion premium of 25% to 30%, according to a market source.

Concurrently with the new offering, the company repurchased $125 million of its 1.5% convertible notes due 2023 for $120 million in cash in privately negotiated transactions.

The small offering was wall-crossed, sources said.

Mentioned in this article:

Centennial Resource Development Inc. Nasdaq: CDEV

Ford Motor Co. NYSE: F

IMAX Corp. NYSE: IMAX

Kite Realty Group Trust NYSE: KRG

Oil States International Inc. NYSE: OIS

Rapid7 Inc. Nasdaq: RPD

South Jersey Industries Inc. NYSE: SJI

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