Royal Caribbean, Arbor Realty reopen convertibles primary market with refinancing deals

By Abigail W. Adams

Portland, Me., Aug. 1 – The convertibles primary market returned to action on the first day of the new month after the first paperless July since at least 2001.

Two new offerings are on deck – both are refinancing deals, as nearly all recent primary market activity has been.

It is a trend sources expect to continue.

Arbor Realty Trust Inc. plans to price $200 million of three-year convertible notes after the market close on Tuesday with price talk for a coupon of 7% to 7.5% and an initial conversion premium of 10% to 15%, according to a market source.

J.P. Morgan Securities LLC and JMP Securities LLC are bookrunners for the Rule 144A offering, which carries a greenshoe of $30 million.

Royal Caribbean Group plans to price $900 million of three-year convertible notes after the market close on Monday.

The deal looked cheap based on underwriters’ assumptions and marks the largest offering of the second-half of 2022.

However, with proceeds to be used to take out existing notes, the deal will do little to enlarge a market that is poised for a sharp contraction in size in 2022.

The new deals come on a choppy day for equity markets.

Indexes wavered between gains and losses before closing in the new month in the red after posting their largest monthly gains since 2020 in July.

The Dow Jones industrial average closed Monday down 47 points, or 0.14%, the S&P 500 index closed down 0.28%, the Nasdaq Composite index closed down 0.18% and the Russell 2000 index closed down 0.10%.

Trading activity in the convertibles secondary space remained anemic amid the volatility with $247 million in reported volume about one hour before the market close.

The activity seemed light even for a summer Monday, sources said.

Royal Caribbean’s 4.25% convertible notes due 2023 were the most actively traded issue in the secondary space with the notes making gains on the heels of the new offering.

While volume in the name was light, Atlas Air Worldwide Holdings Inc.’s 1.875% convertible notes due 2024 were being eyed as the company became the latest subject of takeover chatter.

Royal Caribbean’s refinancing

Royal Caribbean plans to price $900 million of three-year convertible notes after the market close on Monday with price talk for a coupon of 5.75% to 6.25% and an initial conversion premium of 37.5% to 42.5%.

The deal was heard to be in the market with assumptions of 1,000 basis points over Libor and a 45% vol., according to a market source.

Using those assumptions, the deal looked about 3.5 points cheap at the midpoint of talk.

Proceeds from the offering will be used to repurchase a portion of the company’s 2.875% convertible notes due Nov. 15, 2023 and 4.25% convertible notes due June 15, 2023 through open-market transactions, privately negotiated transactions, tender offers or otherwise, according to a company news release.

The amount slated to be raised covers about half of the outstanding amounts of the 2023 convertible notes, a source said.

Royal Caribbean priced a $1.15 billion issue of the 4.25% notes and a $575 million issue of the 2.875% convertible notes in 2020.

The company gave itself enormous flexibility in how it intends to retire the outstanding notes with proceeds from the new offering, sources notes.

Royal Caribbean’s 4.25% convertible notes due 2023 dominated activity in the secondary space with the notes rising on the refinancing news.

The 4.25% convertible notes traded up about 2 points outright with stock off more than 7%.

They were changing hands at 98.5 heading into the market close.

The notes gained about 1 point dollar-neutral, a source said.

The 2.875% convertible notes also gained about 4 points outright and were wrapped around 97 heading into the market close.

Royal Caribbean’s stock traded to a high of $37.30 and a low of $34.51 before ending the day at $35.79, a decrease of 7.59%.

Atlas eyed

While volume in the name was light, Atlas Air’s 1.875% convertible notes due 2024 were eyed following reports that the company was the latest acquisition target of private equity firms.

The 1.875% notes gained 12 points outright as stock skyrocketed more than 12%.

They were changing hands at 145.375 late in the afternoon.

Atlas’ stock traded to a low of $74.11 and a high of $87.96 before closing the day at $84.99, an increase of 12.26%.

Stock jumped $10 in less than five minutes after reports circulated in intraday activity that an investment group led by Apollo and Blackstone were in advanced talks to acquire the airline holding company.

If the takeout price is greater than $100, the 1.875% convertible notes will be winners in the transaction.

However, if it is under $100, the notes stand to lose, a source said.

Mentioned in this article:

Atlas Air Worldwide Holdings Inc. Nasdaq: AAWW

Arbor Realty Trust Inc. NYSE: ABR

Royal Caribbean Group NYSE: RCL

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