DISH to bring $2 billion of convertibles; NextEra also on tap; Cobalt paper declines

By Stephanie N. Rotondo

Seattle, Aug. 2 – The convertible new issue calendar was building up on Tuesday, with offerings announced by DISH Network Corp. and NextEra Energy Inc.

DISH launched a $2 billion offering of 10-year notes.

Initial price talk is 3.125% to 3.625%, a market source reported. The initial conversion premium is expected to be 30% to 35%.

A trader saw the issue at par bid, 100.5 offered in the gray market.

As for the stock, it took a hefty hit as S&P and Moody’s Investors Service expressed concerns about how the deal would impact the bottom line.

The equity closed down $4.29, or 8.02%, at $49.19.

The new issue includes dividend and cash takeover protection.

Upon conversion, DISH will settle its obligations in cash, shares of class A common stock or a combination thereof.

Proceeds will be used for strategic transactions, which may include wireless and spectrum-related strategic transactions, and for other general corporate purposes.

NextEra meantime announced a $1.5 billion offering of mandatory convertible equity units.

The units will have a par value of $50. Each unit will consist of a contract to purchase NextEra Energy common stock and a 5% beneficial ownership interest in a NextEra Energy Capital Holdings Inc. debenture due Sept. 1, 2021. The debentures will be guaranteed by the parent company.

Goldman Sachs & Co., Credit Suisse Securities (USA) LLC and Mizuho Securities are the joint bookrunners.

Proceeds will be added to the general funds of NextEra Energy Capital Holdings, which expects to use its general funds to finance the potential acquisition of Energy Future Holdings Corp., to fund investments in energy and power projects and for other general corporate purposes, including the repayment of a portion of outstanding commercial paper obligations and other debt.

Away from new issues, a trader said Cobalt International Energy Inc. “took every bit of bad news they had and threw them out this morning with earnings.”

In addition to posting a wider loss for the quarter, Cobalt also noted that a sale of its Angola blocks had hit a snag. As a result, the convertible bonds dipped, as the equity tanked.

DISH deal viewed poorly

DISH Network’s $2 billion offering of 10-year convertible notes could have negative implications, ratings agencies reported on Tuesday.

Upon learning of the deal, S&P downgraded the Englewood, Colo.-based television services provider to B+ from BB-.

The new notes were assigned a B- rating.

The agency said that it believed that funds from the offering would be used to fund future spectrum purchases – the Federal Communications Commission is currently auctioning off spectrum – “resulting in elevated forecasted leverage.”

S&P did note that the proceeds would enhance liquidity in the near term but also cited concerns about the company’s declining pay-TV subscriber base amid growing competition.

Moody’s meantime stated that the taking on of more debt was credit negative but that it would not impact the company’s current credit ratings.

“The new converts negatively affect the credit due to their debt-like characteristics, and because we believe they add to the DISH DBS debt burden, given that DISH DBS is the only material cash flow generating business within the DISH family,” Moody’s said in a statement. “We expect that short of a sale or cash flowing arrangement for the spectrum holdings, DISH DBS’s cash flow will be used to service the interest on the new debt and even to settle with cash upon conversion.”

Bad news for Cobalt

Cobalt International Energy also had earnings out, as well as a slew of bad news that depressed its 3.125% convertible notes due 2024.

A trader said the paper traded down to 34 from 40 previously. He also saw the 2.625% convertible notes due 2019 trading widely.

“They has two prints – 39.328 and 35.5 – at virtually the same time, so I don’t quite know what to make of that,” he said.

The equity underlying the shares (NYSE: CIE) meantime took a big dip, falling 38 cents, or 28.01%, to 98 cents.

“Obviously it wasn’t the best of news,” the trader said.

For the quarter, Cobalt reported a wider net loss of $205.55 million, or 50 cents per share. That compared to a loss of $66.81 million, or 16 cents per share, the year before.

As of June 30, long-term debt was $2.03 billion, while cash and equivalents came to $833.8 million.

However, its cash on hand is likely to be reduced by $250 million, the amount received from Sonangol, Angola’s state oil company, for a planned purchase of Cobalt’s 40% stake in offshore oil blocks in the region. Cobalt said Tuesday that the $1.75 billion sale – first announced in August 2015 – was unlikely to move forward. This adds to Cobalt’s troubles, as it is under investigation by the U.S. Department of Justice for its operations in the African state.

The bad news did not stop there, as Cobalt also announced that its Goodfellow #1 exploration well in the Gulf of Mexico – a project started in March that had everyone’s hopes high – was dry.

The company noted that its wider loss was due in part to a write-off taken because of the dry well.

One final bit of disappointing news was that the company has reduced its workforce by over 60% in the last few months.

Ionis a ‘big trader’

Ionis Pharmaceuticals Inc. was “the big trader yesterday and a big trader today,” a market source reported.

The Carlsbad, Calif.-based pharmaceutical company had “really good news” out on Monday, he said, as positive phase 3 data for a spinal muscular atrophy drug was announced.

The 1% convertible notes due 2021 trended higher on Monday and continued to do so on Tuesday, the source said, seeing the issue with a 92 handle.

However, the equity – which jumped about 30% on Monday – gave up a little of its previous gains, coming in 27 cents to $37.74.

Ionis’ drug Nusinersen – created in partnership with Biogen – is used to treat SMA, which is a leading cause of infantile death in the world. As results have been good, the company is hoping to aggressively move forward to bring the drug to market.

Once marketed, the drug could bring in as much as $2 billion, analysts are forecasting. That figure is much higher than previous estimates.

Mentioned in this article:

Cobalt International Energy Inc. NYSE: CIE

DISH Network Corp. Nasdaq: DISH

NextEra Energy Inc. NYSE: NEE

Ionis Pharmaceuticals Inc. Nasdaq: IONS

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