CenterPoint Energy hits the market; Cheniere Energy notes active; RPM drops after call

By Abigail W. Adams

Portland, Me., Sept. 26 – New mandatory convertible preferreds hit the market on Wednesday, occupying the focus of the secondary space.

CenterPoint Energy Inc. priced an upsized $850 million of three-year series B mandatory convertible preferred stock prior to the market open.

The deal was heard to be in demand during bookbuilding. While volatile in secondary trading, the notes were up on both an outright and dollar-neutral basis.

Trading volume was light outside of the new paper. However, Cheniere Energy Inc.’s 4.25% convertible notes due 2045 were the major volume mover in convertible bonds with a large seller in the market.

RPM International Inc.’s 2.25% convertible notes due 2020 were trading down on an outright and dollar-neutral basis after the company announced plans to redeem the notes on Nov. 26.

Chegg Inc.’s 0.25% convertible notes due 2023 dropped outright but held dollar-neutral as stock took a hit after the company announced a data breach.

CenterPoint volatile

CenterPoint Energy priced an upsized $850 million of three-year series B mandatory convertible preferred stock prior to the market open on Wednesday at the midpoint of talk with a dividend of 7% and a threshold appreciation premium of 20%.

Price talk was for a dividend of 6.75% to 7.25% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

The greenshoe was also upsized to $127.5 million. The initial size of the deal had been for $750 million with a greenshoe of $112.5 million.

The offering consists of 17 million $50-par depositary shares representing a 1/20th interest in the series B convertible preferred stock.

The deal was part of a large capital raise to fund the energy delivery company’s acquisition of Vectren Corp.

The mandatory convertible preferred stock priced concurrently with an upsized offering of $1.6 billion, or 60,550,459 shares, of common stock, which priced at $27.25 per share.

The depositary shares were active during Wednesday’s session with more than 3 million of the shares changing hands.

They were volatile in the high-volume trading.

The depositary shares were trading north of $51.00 soon after the opening bell but came in as the day progressed.

They were seen trading $50.375 versus a stock price of $27.35 in the mid-afternoon.

Outright players drove the trading activity. However, the depositary shares were expanded about 0.25 point on hedge, a market source said.

“They’re trading off the common and the common priced nice and cheap,” another source said.

However, the depositary shares continued to trade down as the common stock dropped off. The shares closed the day below issue price at $49.90.

CenterPoint Energy’s common stock closed the day at $27.25, a decrease of 1.45%.

Cheniere Energy active

Trading of convertible bonds was light with CenterPoint Energy’s mandatory convertible preferreds the focus of the space.

However, Cheniere Energy’s 4.25% convertible notes due 2045, which are not normally seen on the tape, were the top volume mover for convertible bonds on Wednesday.

The notes traded up to 80.5 with about $9 million of the bonds on the tape by the late afternoon.

There was a large seller in the market with several small buyers, a market source said.

Sources pegged the notes up 0.5 point to 1 point on an outright basis with the majority of trading activity from outright accounts.

The notes are pretty busted with a high conversion premium, a market source said.

However, they have been on the rise in 2018 alongside Cheniere Energy’s stock and the broader oil and gas sector.

Cheniere stock was upgraded by both Morgan Stanley and Cowen Inc. on Wednesday.

Morgan Stanley upgraded the stock to an overweight rating from an equal weight rating with the price target moved to $80 from $70.

Cowen upgraded the stock to a buy rating from a market perform.

Cheniere stock closed the day at $68.93, an increase of 0.54%.

The LNG company priced a $625 million issue of the 4.25% convertible notes at an issue price of 80 in 2015.

RPM’s call

RPM’s 2.25% convertible notes due 2020 were trading down on Wednesday after the company announced it would redeem the outstanding $205 million of the notes on Nov. 27.

The notes were down about 3 points outright and were contracted about 0.5 point dollar-neutral, a market source said.

They were trading at 126.5 bid, 127 offered. RPM stock closed Wednesday at $66.32, a decrease of 1.03%.

“The bonds have been overpriced for a while,” a market source said. There may be some short-covering before they trade at their true economic value, the source said.

The redemption changed the investor base for the bonds with buyers interested in the notes for the call.

RPM will redeem the notes at par plus accrued interest on Nov. 27.

The notes are convertible at any time prior to Nov. 26 with a conversion rate of 19.185116 and a conversion price of $51.12.

Conversion will be settled in a combination of cash and shares.

Chegg drops

Chegg’s 0.25% convertible notes due 2023 were dropping outright but holding dollar-neutral as the company’s stock took a hit after a data breach.

The 0.25% notes were down more than 11 points to close the day at 120, according to a market source. They were trading around 131 on Tuesday.

While the drop “was a big hit for outrights,” the notes were unchanged on a dollar-neutral basis, a market source said.

Chegg stock closed Wednesday at $28.42, a decrease of 12.09%.

Chegg announced after the market close on Tuesday it had recently become aware of a data breach in April that compromised login and user information.

The education technology company began notifying 40 million users about the data breach on Wednesday.

Mentioned in this article:

CenterPoint Energy Inc. NYSE: CNP

Chegg Inc. NYSE: CHGG

Cheniere Energy Inc. NYSE: LNG

RPM International Inc. NYSE: RPM

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