Morning Commentary: Carnival convertible notes on tap; DISH active in secondary market

By Abigail W. Adams

Portland, Me., April 1 – The first new convertible deal since early March is set to price after the market close on Wednesday, as equities extend their losses into the new quarter on a grim forecast for the continued toll of the coronavirus.

Carnival Corp., a cruise ship operator that has been badly battered by the pandemic, will be the first company to tap the convertibles market as part of a $6.5 billion capital raise.

While the company’s concurrent offering of common stock was downsized and its offering of straight debt upsized, the size and terms of the convertible notes offering remained unchanged early Monday.

Carnival plans to price $1.75 billion of three-year convertible notes after the market close on Wednesday with price talk for a coupon of 5.75% to 6.25% and an initial conversion premium of 17.5% to 22.5%, according to a market source.

The deal is being marketed with assumptions of 1,400 bps over Libor and a 40% vol., which modeled a little over 8 points cheap at the midpoint of talk, sources said.

The convertibles deal will be extremely attractive if the leisure travel company is able to reboot its business in the next year or two, a source said.

However, there are several unknowns weighing on the offering, which are not limited to the impact of the coronavirus on the company’s future operation.

Carnival is registered in Panama, which is why the company has been forced to tap capital markets for “rescue financing,” a market source said.

It is not eligible to receive relief through Congress’ stimulus package.

However, if the company goes bankrupt, the bankruptcy will be handled by Panamanian law.

“Who knows what rules apply in Panama,” a source said.

While the size and terms of Carnival’s convertible notes offering remained unchanged, its offering of three-year first priority senior secured notes was upsized to $4 billion from $3 billion with a euro-denominated tranche removed.

The straight debt was talked with a coupon of 12% and a reoffer price of 99.

It was heard to be heavily oversubscribed with distressed debt accounts lining up for allocations.

However, its secondary offering of common stock was downsized to $750 million from $1.25 billion.

Carnival stock was taking a beating early Wednesday and was changing hands at $11.45, a decrease of 12.96%, shortly before 11 a.m. ET.

Meanwhile, trading activity in the secondary space was light early Wednesday with about $47 million on the tape about one hour into the session.

DISH Network Corp.’s 2.375% senior notes due 2024 were the most actively traded issue early in the session.

The notes were changing hands at 81 with about $7 million in reported volume. DISH stock traded down to $18.94, a decrease of 5.25%, shortly before 11 a.m. ET.

The notes were active after T-Mobile announced the completion of its acquisition of Sprint.

DISH is now poised to become the U.S.’s fourth-largest mobile phone operator.

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