Square, Liberty Media convertible offerings in demand; talk tightens; secondary soars

By Abigail W. Adams

Portland, Me., Nov. 9 – The convertibles primary market returned to action on Monday with two overnight offerings totaling $1.6 billion on deck.

Square Inc. plans to price a $1 billion two-tranche offering of long five-year convertible notes and seven-year convertible notes after the market close on Monday.

Liberty Media Corp. also plans to price $600 million of 30-year notes exchangeable for Live Nation Entertainment Inc.’s common stock.

The offerings were in demand during bookbuilding with talk on both tightening.

Meanwhile, the rally in the secondary space gained momentum as equity markets roared on the heels of president-elect Joseph R. Biden’s decisive victory and positive early data on Pfizer’s Covid-19 vaccine.

The convertibles market in general was up 1.5 points to 2 points dollar-neutral, a source said.

With renewed confidence in the “reopening trade,” the convertible notes of airlines were among the major benefactors of Monday’s rally.

Southwest Airlines Co.’s 1.25% convertible notes due 2025 and American Airlines Group Inc.’s 6.5% convertible notes due 2025 soared on an outright and dollar-neutral basis.

Square tightens talk

Square’s $1 billion two-tranche offering of long five-year convertible notes and seven-year convertible notes played to heavy demand during bookbuilding with talk tightening.

Talk for the convertible notes due May 1, 2026 tightened to a fixed coupon of 0% and an initial conversion premium of 60% to 65%, according to a market source.

Initial talk was for a coupon of 0% to 0.25% and an initial conversion premium of 55% to 60%.

Talk on the seven-year convertible notes tightened to a fixed coupon of 0.25% and an initial conversion premium of 60% to 65%.

Initial talk was for a coupon of 0.25% to 0.75% and an initial conversion premium of 55% to 60%.

Underwriters were marketing the long five-year convertible notes with assumptions of 220 basis points over Libor and a 42% vol., according to a market source.

Using those assumptions, the deal looked 2.14 points cheap at the midpoint of initial talk.

The seven-year convertible notes were being marketed with assumptions of 245 bps over Libor and a 42% vol., which looked 1.15 points cheap at the midpoint of initial talk, a source said.

However, the repricing took the cheapness out of the deal with some accounts walking away from the offering.

“It’s too rich,” a source said.

Liberty Media tightens talk

Liberty Media’s offering of $600 million of 30-year notes exchangeable for Live Nation Entertainment’s common stock was in demand during bookbuilding with talk tightening to a coupon of 0.25% to 0.75% and an initial conversion premium of 40%.

Initial price talk was for a coupon of 0.5% to 1% and an initial exchange premium of 37.5% to 42.5%, according to a market source.

The deal was heard to be marketed with assumptions of 350 bps over Libor and a 40% vol., which looked 5.25 points cheap at the midpoint of initial talk, a source said.

The offering comes as Live Nation’s stock surged more than 20% on the prospect of an imminent Covid-19 vaccine.

“There’s so much demand after the [vaccine] euphoria, this deal’s going to work out nicely,” a source said.

Live Nation’s stock jumped more than 20% in intraday activity following the vaccine news.

However, it came in toward the market close and ended the day at $64.36, an increase of 14.85%.

The news was fortuitous with the deal launching prior to the news breaking about the vaccine.

With a 40% premium on top of Monday’s gain in stock, “this is a super deal” for the company, another source said.

With Liberty Media backing the notes, the credit on the deal is also better than had it come directly from Live Nation, a source said.

Airlines soar

Airlines were among the major benefactors of Monday’s rally with Southwest’s 1.25% convertible notes due 2025 and American Airlines’ 6.5% convertible notes due 2025 soaring.

Southwest’s 1.25% convertible notes due 2025 jumped more than 10 points outright with stock up more than 11%.

The 1.25% convertible notes were changing hands at 145.125 in the late afternoon.

They expanded 1.5 to 2 points dollar-neutral.

Southwest’s stock traded to a high of $49.47 and a low of $43.79 before closing the day at $43.89, an increase of 9.7%.

American Airlines’ struggling 6.5% convertible notes due 2025 skyrocketed.

The notes jumped more than 15 points outright with stock up more than 15%.

The notes were changing hands on a 102-handle on Monday after closing out the previous session at 87.

They expanded as much as 5 points dollar-neutral, a source said.

American Airlines’ stock traded to a high of $14.41 and a low of $12.75 before closing the day at $13.20, an increase of 15.18%.

Mentioned in this article:

American Airlines Group Inc. Nasdaq: AAL

Live Nation Entertainment Inc. NYSE: LYV

Southwest Airlines Co. NYSE: LUV

Square Inc. NYSE: SQ

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