Guidewire on tap; Assurant convertible preferreds look cheap; Cobalt drops on auction

By Abigail W. Adams

Portland, Me., March 7 – Trading activity was “pretty dead” in the convertibles space on Wednesday with a winter storm pummeling New York City also blanketing trading volume, market sources said. However, the storm did not stifle activity in the primary market.

Guidewire Software Inc. plans to price $300 million of seven-year convertible notes after the market close on Thursday with price talk for a coupon of 1.25% to 1.75% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

Goldman Sachs & Co. LLC., Citigroup Global Markets Inc. and J.P. Morgan Securities LLC are the bookrunners for the registered offering, which carries a greenshoe of $45 million.

The notes are contingently convertible until Oct. 15, 2024. The notes are non-callable until March 20, 2022 and then subject to a 130% hurdle.

Concurrently with the pricing of the convertible notes, Guidewire is offering $200 million of common stock. The common stock offering carries a greenshoe of $30 million.

Assurant Inc. still plans to price $250 million, or 2.5 million shares, of three-year $100-par mandatory convertible preferred stock after the market close Wednesday, according to a market source. The deal was seen as cheap at the mid-point of talk but is expected to price rich.

Cobalt International Energy Inc.’s 3.125% and 2.625% convertible notes tanked on Wednesday with both notes dropping to single digits after the auction results for the bankrupt company’s deep-water U.S. Gulf of Mexico properties.

“The auction results are out and they are not good,” a market source said.

Western Digital Corp.’s 1.5% notes due 2024 remained in focus on Wednesday with the notes continuing to gain on an outright basis. The notes jumped 2 points to trade between 108 and 109 as the San Jose, Calif.-based computer data storage company’s stock also climbed.

Western Digital stock closed Wednesday at $95.28, an increase of 1.58%.

Caesars Entertainment Corp.’s 5% convertible notes due 2024 were making gains on an outright basis early in the session in the run up to the Las Vegas, Nev.-based gaming company’s fourth-quarter earnings report, which was announced after the market close.

Assurant’s deal

The market awaits Assurant’s offering of three-year mandatory convertible preferred stock, which is expected to price after the market close on Wednesday, despite the winter storm pummeling New York City.

Price talk is for a dividend of 6.25% to 6.75% and an initial conversion premium of 17.5% to 22.5%. “It looks pretty cheap at the mids,” a market source said.

The deal was seen as 2.5 points cheap at the mid-point of talk. However, the deal is expected to price rich. “The market’s desperate for paper, the issuer is good credit, and it’s getting listed,” the source said.

The preferreds will be listed for trade on the New York Stock Exchange under the ticker “AIZP.”

Assurant is also a previous issuer of exchangeable bonds, with an issue about 10 years ago, and is a known name in the convertibles space, the source said.

Morgan Stanley & Co. LLC, JPMorgan and Wells Fargo Securities, LLC are the joint bookrunners for the registered deal, which carries a greenshoe of $37.5 million, or 375,000 shares.

Assurant is the second mandatory convertible preferred stock offering to price amidst inclement weather in New York City.

The last time a large winter storm blanketed New York City with up to a foot of snow, on Jan. 4, Sempra Energy priced $1.5 billion in $100-par 6% series A mandatory convertible preferred stock due 2021.

The mandatory convertible preferred stock, which trades on the NYSE under the ticker “SREPrA,” broke out to a new 52-week high on Wednesday. The convertible preferred stock closed Wednesday at $102.49, an increase of 79 cents or 0.78%.

Cobalt tanks

Cobalt’s 3.125% and 2.625% convertible notes dropped to single digits on Wednesday afternoon after the results of the auction for the bankrupt company’s Gulf of Mexico property were announced.

In a flurry of activity, Cobalt’s 3.125% convertible notes dropped to trade in the 3 to 4 range after trading in the low 30s earlier in Wednesday’s session. Cobalt’s 2.625% convertible notes also dropped to trade in the 3 to 4 range after trading at 32 earlier in the morning.

The auction results prompted the steep decline of the long-busted convertible notes.

Cobalt’s convertible notes have been in focus since the Houston-based petroleum exploration and production company filed for Chapter 11 bankruptcy in mid-December after missing coupon payments on both notes.

The notes, which were in the 11 to 12 range, jumped to the low 30s in late December after Cobalt reached a settlement of $500 million for its interests off the coast of Angola. The company’s prime property, however, was in the Gulf of Mexico.

The results of the auction were announced Wednesday afternoon with the property netting $578 million in bids.

“The auction results are out and they are not good,” a market source said.

Cobalt’s disclosure statement hearing will be held on Thursday. An informal group of first-lien noteholders objected to the disclosure statement for the company’s proposed Chapter 11 plan, Prospect News reported.

Caesars earnings

Caesars Entertainment’s 5% convertible notes due 2024 were making gains on an outright basis ahead of the company’s fourth-quarter earnings report, which was announced after the market close.

The notes climbed about 5 points on an outright basis to trade at 193 versus an equity price of $12.675, an increase of 2.63%, early in the session. Trading of the notes tempered in the afternoon.

Caesars’ stock closed Wednesday at $12.50, an increase of 1.21%. Caesars’ stock climbed in after-hour trading on Wednesday on the earnings news.

Caesar reported earnings per share of $2.48 for the fourth-quarter and a net loss of $1.35 per share for 2017.

Mentioned in this article:

Assurant Inc. NYSE: AIZ

Caesars Entertainment Corp. Nasdaq: CZR

Cobalt International Energy Inc. OTC: CIEIQ

Guidewire Software Inc. NYSE: GWRE

Western Digital Corp. Nasdaq: WDC

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