Kite Realty convertibles, South Jersey equity units contract; secondary under pressure

By Abigail W. Adams

Portland, Me., March 18 – What many expect to be the last new paper in another high-volume week for the convertibles primary market hit the aftermarket on Thursday.

Kite Realty Group Trust priced $175 million of six-year exchangeable notes (Baa3) and South Jersey Industries Inc. priced $300 million, or 6 million three-year $50-par equity units, after the market close on Wednesday.

Both offerings priced cheap and hit the aftermarket on another brutal day for equities as inflation concerns again reared their head with the 10-year Treasury yield shooting past 1.7%.

The high-flying tech names that populate the convertibles universe again led the market’s decline.

The Dow Jones industrial average closed the day down 153 points, or 0.53%, the S&P 500 index closed down 1.48%, the Nasdaq Composite closed down 3.02% and the Russell 2000 index closed down 2.93%.

“More tears in the coffee today,” a source said.

While the overall secondary space was weak, the new paper was underperforming the broader market, a source said.

Both Kite Realty’s convertible notes and South Jersey Industries’ equity units were down on an outright and dollar-neutral basis.

Meanwhile, several of the deals to price over the course of the week were under pressure amid the sell-off in equities.

Ford Motor Co.’s 0% convertible notes due 2026 dropped back down to par in the late afternoon.

Rapid7 Inc.’s 0.25% convertible notes due 2026 continued to decline with the notes dropping to a 96-handle.

Kite Realty contracts

Kite Realty priced $175 million of six-year exchangeable notes after the market close on Wednesday at par with a coupon of 0.75% and an initial exchange premium of 25%.

Pricing came at the cheap end of 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 notes contracted 0.25 point dollar-neutral, a source said.

Kite Realty’s stock traded to a high of $20.68 and a low of $20.03 before closing the day at $20.25, an increase of 0.52%.

South Jersey underperforms

South Jersey Industries priced $300 million, or 6 million three-year $50-par equity units, after the market close on Wednesday at par with a yield of 8.75% and a threshold appreciation premium of 17.5%, according to an FWP filing with the Securities and Exchange Commission.

Pricing came at the cheap end of 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.

Concurrently, the company priced a secondary offering of 362,359 common shares at a public offering price of $22.25.

The units were cheap, a source.

However, they struggled on their aftermarket debut.

The units were marked at $49.50 bid, $49.80 offered versus a stock price of $22.50 early in the session, a source said.

They continued to trade off as the session progressed and closed the day at $48.

The notes contracted about 1 point dollar-neutral.

South Jersey Industries’ stock traded to a high of $22.60 and a low of $21.50 before closing the day at $21.51, a decrease of 4.4%.

Ford at par

Ford’s 0% convertible notes due 2026 gave back their outright gains and dropped back down to par in active trading on Thursday.

The 0% notes were down 1 point outright with stock off 1.5%.

The notes were changing hands at par versus an equity price of $12.61 in the late afternoon.

There was more than $39 million in reported volume.

Ford’s stock traded to a high of $13.01 and a low of $12.44 before closing the day at $12.49, a decrease of 1.58%.

The 0% notes were volatile on their aftermarket debut on Wednesday.

While the notes were weak at the start of Wednesday’s session, they improved as the session progressed and closed the day with outright and dollar-neutral gains.

Rapid7 decline continues

Losses continued to mount for Rapid7’s 0.25% convertible notes due 2027.

The notes sank to a 96-handle as stock dropped more than 8%.

The 0.25% notes were changing hands at 96.375 versus an equity price of $72.89 in the late afternoon, according to a market source.

There was more than $10 million in reported volume.

Rapid7’s stock traded to a high of $78.50 and a low of $72.44 before closing the day at $72.52, a decrease of 8.2%.

The 0.25% notes were volatile on the aftermarket debut on Wednesday.

While strong out of the gate, the notes closed the day below par.

However, they were flat dollar-neutral.

Mentioned in this article:

Ford Motor Co. NYSE: F

Kite Realty Group Trust NYSE: KRG

Rapid7 Inc. Nasdaq: RPD

South Jersey Industries Inc. NYSE: SJI

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