Morning Commentary: Cracker Barrel, Vroom convertible notes on deck; NextEra below par

By Abigail W. Adams

Portland, Me., June 15 – New paper was in focus on Tuesday with two new offerings on deck and one new deal making its aftermarket debut.

Cracker Barrel Old Country Store Inc. plans to price a $275 million offering and Vroom Inc. a $500 million offering of five-year convertible notes after the market close on Tuesday.

Both deals looked cheap based on underwriters’ assumptions.

Meanwhile, NextEra Energy Partners LP priced a $500 million offering of three-year convertible notes in an overnight deal on Monday.

The new paper was under pressure on their aftermarket debut and trading well below par.

Cracker Barrel eyed

Cracker Barrel plans to price $275 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.375% to 0.875% and an initial conversion premium of 25% to 30%.

Underwriters were marketing the deal with assumptions of 325 basis points over Libor and a 30% vol., according to a market source.

Using those assumptions, the deal looked about 1 point cheap at the midpoint of talk.

Vroom eyed

Vroom plans to price $500 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.75% to 1.25% and an initial conversion premium of 35% to 40%.

Underwriters were marketing the deal with assumptions of 450 bps over Libor and a 42% vol, according to a market source.

Using those assumptions, the deal looked 2.5 points cheap at the midpoint of talk.

NextEra below par

NextEra priced $500 million of three-year convertible notes after the market close on Monday at par with a coupon of 0% and an initial conversion premium of 20%.

Pricing came in line with talk for a fixed coupon of 0%, a fixed initial conversion premium of 20% and at the cheap end of talk for a reoffer price of par to 100.5.

While the deal came at par to yield 0%, NextEra’s convertible notes would have been the first Rule 144A convertible deal to carry a negative yield had it priced at the rich end of talk.

The new paper hit the secondary space on a red day for equities as the S&P 500 and Nasdaq Composite pulled back from their record highs.

The 0% notes traded to a low of 98.5 early in the session.

They were changing hands between 99 and 99.5 a little more than one hour into the session, according to a market source.

While the notes struggled early Tuesday, the company was a solid credit and the notes were only three-year paper.

“It’s a good buying opportunity,” a source said.

NextEra’s units were changing hands at $73.92, a decrease of 1.99%, at about 11 a.m. ET.

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