Morning Commentary: Norwegian Cruise Line exchangeables on deck; Snap gains continue

By Abigail W. Adams

Portland, Me., Feb. 10 – The convertibles primary market remained active with one new offering on deck on a choppy day for equities.

NCL Corp. Ltd., a subsidiary of Norwegian Cruise Line Holdings Ltd., plans to price $435 million of five-year exchangeable notes after the market close on Thursday.

The deal looked cheap based on underwriters’ assumptions. However, some felt the company deserved a wider credit spread.

Meanwhile, equities were mixed following the latest Consumer Price Index report and batch of earnings.

While the annual 7.5% increase in the CPI report came in greater than the 7.2% expected, several key earning reports also continued to trounce expectations.

After opening deep in the red, equity indexes pared their losses with some entering into positive territory.

The Dow Jones industrial average was down 85 points, or 0.24%, the S&P 500 index was down 0.35%, the Nasdaq Composite was down 0.34% and the Russell 2000 index was up 0.70% shortly before 11 a.m. ET.

There was $80 million in reported convertibles trading volume about one hour into the session with Snap Inc.’s 0.125% convertible notes due 2028 continuing to dominate the tape.

The new paper continued to gain in active trading.

NCL eyed

Norwegian Cruise Line plans to price $435 million of five-year exchangeable notes after the market close on Thursday with price talk for a coupon of 2.5% to 3% and an initial exchange premium of 47.5% to 52.5%.

Underwriters were marketing the deal with assumptions of 550 basis points over Libor and a 45% vol., according to a market source.

Using those assumptions, the deal looked 3.19 points cheap at the midpoint of talk, a source said.

However, other sources felt the credit spread was aggressive.

Using a credit spread of 600 bps and a 45% vol. reduced the cheapness of the deal to about 1 point at the midpoint of talk, a source said.

The exchangeable notes are pricing concurrently with an offering of $1 billion senior secured notes due 2027 and $600 million senior notes due 2029.

While proceeds will be used to redeem the company’s outstanding 12.25% senior secured notes due 2024 and 10.25% senior secured notes due 2026, it is still a huge capital raise for a highly leveraged company with a $9.8 billion market cap, a source said.

Snap gains continue

Snap’s new 0.125% convertible notes due 2028 continued to dominate activity in the secondary space with the notes continuing to post gains on an outright basis alongside stock.

The 0.125% notes were trading at 104.75 versus a stock price of $41.11 early in the session.

There was $11 million in reported volume.

Snap’s stock was changing hands at $41.59, an increase of 2.71%, shortly before 11 a.m. ET.

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