Hannon Armstrong widens talk on exchangeables; Zendesk active; Ford down

By Abigail W. Adams

Portland, Me., April 7 – The convertibles primary market broke its silence on Thursday with one new offering on deck.

Hannon Armstrong Sustainable Infrastructure Capital Inc. plans to price $200 million of 0% green exchangeable bonds due 2025 after the market close.

While the offering was the first new deal since March 25, the deal experienced “serious pushback,” a source said, with price talk widening as a result.

Meanwhile, it was another quiet day in the convertibles secondary space on another volatile day for equity markets.

Indexes wavered between gains and losses before closing mixed.

The Dow Jones industrial average closed Thursday up 87 points, or 0.25%, the S&P 500 index closed up 0.43%, and the Nasdaq Composite closed up 0.06%.

However, the Russell 2000 index underperformed, closing the day down 0.35%.

There was $84 million in reported volume about one hour into the session and $351 million on the tape about one hour before the market close.

Zendesk Inc.’s 0.625% convertibles due 2025 were active amid speculation the company is a takeout candidate.

Zscaler Inc.’s 0.125% convertible notes due 2025 were also active as stock spiked early in the session.

However, Ford Motor Co.’s 0% convertible notes due 2026 continued to trend lower alongside stock.

Hannon widens talk

Hannon Armstrong widened price talk on its proposed offering of $200 million of 0% green exchangeable bonds due 2025 after experiencing “serious pushback,” a source said.

Revised terms have the 0% exchangeable notes due 2025 coming with a redemption price at maturity of 110.15 for an accretion rate of 3.25% and an initial conversion premium of 30% to 32.5%.

Initial price talk was for a redemption price at maturity of 107.1 to 108.7 for a yield of 2.25% to 2.75% and an initial conversion premium of 35% to 40%.

The deal was being marketed with assumptions of 215 basis points over Libor and a 38% vol., a source said.

Using those assumptions, the deal looked about 2 points cheap at the midpoint of initial talk, a source said.

However, the unique structure of the deal made traditional modeling difficult.

The structure of the deal was unique among Rule 144A deals with a 0% coupon and an accretion rare, a source said.

The rarity of the structure was partly responsible for the pushback received during bookbuilding, a source said.

The common stock also carries a large dividend, making the exchangeable notes less attractive.

However, the exchangeable notes are BB+ rated paper and will be going into the indexes, a source said.

The exchangeable notes also rank higher in the capital structure than the company’s outstanding 0% convertible notes due 2023 because the proposed convertible notes are exchangeable through one of the company’s subsidiaries, a source said.

Hannon Armstrong currently has $143.75 million outstanding in 0% convertible notes due 2023.

The 0% convertible notes were not active on Thursday with the last trades in the name on a 108-handle in late March, according to Trace data.

The company’s 4.125% convertible notes due 2022 were called in early March.

Zendesk in focus

Zendesk’s 0.625% convertibles due 2025 were in focus on Thursday although the notes were little changed in the high-volume activity.

The 0.625% convertible notes were changing hands at 126.375 versus an equity price of $121.43 in the late afternoon.

There was $13 million in reported volume.

Zendesk stock traded to a high of $123.91 and a low of $120.07 before closing the day at $123.32, an increase of 0.6%.

The convertible notes were active after shareholder Light Steet’s founder Glen Kacher said in a CNBC interview that Zendesk would be an attractive takeover target that may be worth $180 to $200 a share.

Zendesk is currently in the middle of a proxy battle with Jana Partners which is attempting to have Jana members appointed to the board.

Activist investor Jana Partners has been pushing the software company to sell itself.

Zendesk previously rejected a takeover bid from private equity investors that valued the company between $127 to $132 a share.

Zscaler active

Zscaler’s 0.125% convertible notes due 2025 also saw a round of active trading as stock spiked early in the session.

The 0.125% convertible notes were up 6 points early in the session to trade at 167.75 versus a stock price of $236.06.

However, the convertible notes came in alongside stock as the session progressed and were changing hands at 163.875 versus a stock price of $230.51 in the late afternoon.

There was $13 million in reported volume.

Zscaler stock traded to a high of $239.95 and a low of $224.42 before closing the day at $231.96, an increase of 2.61%.

Ford down

Ford’s 0% convertible notes due 2026 continued to trend lower alongside stock on Thursday.

The 0% convertible notes fell another 1.75 points outright with stock off more than 3% in intraday activity.

The 0% convertible notes were changing hands at 109.75 versus a stock price of $14.80 in the late afternoon.

There was $10 million in reported volume.

Ford stock traded to a high of $15.21 and a low of $14.56 before closing the day at $14.96, a decrease of 2.76%.

Ford’s convertible notes have been under pressure alongside stock throughout the week with the notes falling about 7 points outright.

Mentioned in this article:

Ford Motor Co. NYSE: F

Hannon Armstrong Sustainable Infrastructure Capital Inc. NYSE: HASI

Zendesk Inc. NYSE: ZEN

Zscaler Inc. Nasdaq: ZS

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