Morning Commentary: Clarios convertible preferreds on tap; Pinduoduo notes rebound

By Abigail W. Adams

Portland, Me., July 28 – The convertibles primary market has been silent over the course of the week as equity markets whipsawed between record gains and brutal sell-offs amid an onslaught of earnings reports and a pending announcement from the Federal Reserve about the future of its easy money policies.

While new deal activity remains sparse, one deal does remain on the forward calendar and is set to price on Thursday.

Clarios International Inc. plans to price $500 million of three-year $50-par mandatory convertible preferred stock on Thursday with price talk for a dividend of 5.75% to 6.25% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

The deal was heard to be in the market with assumptions of 300 basis points over Libor and a 27% to 30% vol. skew, a source said.

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

The deal has been on the calendar for over a week due to it pricing concurrently with its IPO.

The mandatory convertible preferred stock offering enables the company to sidestep rules on how much can be raised through its IPO and enables it to complete all its needed financing in one fell swoop, a source said.

Meanwhile, convertible notes from China-based companies remained in focus in the secondary space as the sell-off in Asian names eased with Beijing making efforts to calm investors about its regulatory overhaul.

Pinduoduo Inc.’s 0% convertible notes due 2025 remained active with the notes gaining outright alongside equity.

The 0% notes were changing hands at 92.75 versus an equity price of $89.96.

Pinduoduo’s ADSs were changing hands at $90.92, an increase of 14.32%, shortly before 11 a.m. ET.

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