Chefs’ Warehouse, Chart convertibles eyed; Uniti ‘a disaster’; Cutera outperforms

By Abigail W. Adams

Portland, Me., Dec. 8 – The convertibles primary market continued to unleash deals at a record-setting clip with $550 million in two deals slated to price after the market close on Thursday after $1.1 billion cleared the market post-close Wednesday.

Chart Industries Inc. plans to price $300 million $50-par depositary shares representing a 1/20th interest in $1,000 par three-year series B mandatory convertible preferred stock, and Chefs’ Warehouse Inc. plans to price $250 million of six-year convertible notes after the market close on Thursday.

While the deals continued to model cheap, the demand for new paper seen early in the week dissipated with many of the deals that priced post-close Wednesday struggling during bookbuilding and in the secondary space, sources said.

“This is too much, too quickly,” a source said.

“There’s an absorption issue here,” another source said.

NextEra Energy Partners LP’s offering of $500 million 3.5-year convertible notes priced well wide of talk and was underwater in secondary market activity.

Uniti Group Inc.’s offering of five-year convertible notes priced cheap after experiencing pushback during bookbuilding and was a “disaster” in the aftermarket, sources said.

While EZCorp Inc.’s $200 million offering of seven-year convertible notes were under fire with an equity investor calling for a rescinding of the offering, the deal was “oddly the highlight” early in the session, a source said.

However, the notes dropped below par as stock swooned in intraday activity but held onto their gains on hedge.

Cutera Inc.’s $100 million offering of seven-year convertible notes were the outperformers of Wednesday’s deals with the notes making large gains on an outright and dollar-neutral basis.

Post-close

Chart Industries plans to price $300 million $50-par depositary shares representing a 1/20th interest in $1,000 par three-year series B mandatory convertible preferred stock after the market close on Thursday with price talk for a dividend of 6.75% to 7.25% and an initial conversion premium of 17.5% to 22.5%.

The deal was heard to be in the market with assumptions of a 650 basis points credit spread and a 55% to 52% vol. skew, a source said.

The deal looked cheap, but mandatories play to a select audience in the market, a source said.

Chefs’ Warehouse plans to price $250 million of six-year convertible notes after the market close on Thursday with price talk for a coupon of 2.125% to 2.625% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of a 575 bps credit spread and a 40% vol.

Using those assumptions, the deal looked just north of 1 point cheap at the midpoint of talk, a source said.

However, some sources felt the credit spread was too tight.

Investors were heard to be pushing for the deal to price at the cheap end of talk.

NextEra comes wide

NextEra sold $500 million of 3.5-year convertible notes after the market close on Wednesday at 97 with a coupon of 2.5% to yield 3.415% and an initial conversion premium of 20%.

Pricing came in line with talk for a fixed coupon of 2.5% and a fixed initial conversion premium of 20% and wide of initial talk for a reoffer price of 98 to 98.25, according to a market source.

Several factors drove the repricing, such as the break-even common stock dividend and the hit stock took as a result of the overnight offering.

“These overnight deals are too aggressive,” a source said.

The notes struggled in secondary market activity with the notes trading down to 96.5 early in the session, a source said.

They were marked at 96.375 bid, 96.625 offered in the late afternoon.

The notes contracted about 0.5 point dollar-neutral, a source said.

There was $36 million in reported volume.

NextEra’s stock traded to a high of $76.28 and a low of $74.36 before closing the day at $75.81, a decrease of 4.17%.

EZCorp expands

EZCorp priced an upsized $200 million of seven-year convertible notes after the market close on Wednesday at par at the midpoint of talk with a coupon of 3.75% and an initial conversion premium of 30%.

Price talk was for a coupon of 3.5% to 4% and an initial conversion premium of 27.5% to 32.5%.

The greenshoe was also upsized to $30 million.

The initial size of the offering was $175 million with a greenshoe of $25 million.

While an equity investor called for a rescinding of the offering, EZCorp’s deal was “oddly the highlight” of the rush of Wednesday’s deals with the notes performing well on an outright and dollar-neutral basis early in the session.

The notes were changing hands at 100.75 early in the session; however, they sank below par as stock took a dive in intraday activity.

The notes traded at 98.8 versus a stock price of $8.36 in the late afternoon.

However, they were up about 0.75 point on hedge, a source said.

There was $22 million in reported volume.

EZCorp’s stock traded to a low of $8.17 and a high of $8.86 before closing the day at $8.26, a decrease of 4.4%.

EZCorp’s issuance of new convertible notes was heard to have experienced some pushback during the conference call with some arguing that the company should have turned to other sources for the refinancing.

Simultaneously with the offering, the company repurchased for cash $109.4 million in principal of its 2.875% convertible notes due 2024 and $69.1 million in principal of its 2.375% convertible notes due 2025 for $182 million in privately negotiated transactions.

Kanen Wealth Management, a minority shareholder, issued a statement late Wednesday criticizing the EZCorp board and calling for a rescinding of the offering, Prospect News reported.

Cutera outperforms

Cutera priced $100 million of seven-year convertible notes after the market close on Wednesday at par at the midpoint of talk with a coupon of 4% and an initial conversion premium of 17.5%.

Price talk was for a coupon of 3.75% to 4.25% and an initial conversion premium of 15% to 20%.

The notes were not seen on the street early in the session but skyrocketed in active trade as the session progressed.

The notes traded up to a 105-handle outright and made large dollar-neutral gains.

The notes were changing hands at 105.25 versus a stock price of $46.43 in the late afternoon.

They expanded 3 to 4 points dollar-neutral depending on when the notes were put up on hedge, a source said.

Cutera’s stock traded to a low of $43 and a high of $47.87 before closing the day at $47.26, a decrease of 4.83%.

Uniti ‘a disaster’

Uniti sold $300 million of five-year convertible notes after the market close on Wednesday at par at the cheap end of talk with a coupon of 7.5% and an initial conversion premium of 20%.

Price talk was for a coupon of 7% to 7.5% and an initial conversion premium of 20% to 25%, according to a market source.

The deal was heard to have struggled during bookbuilding and was “a disaster” in secondary market activity, sources said.

The notes traded as low as 97 out of the gate and were changing hands at 97.5 versus a stock price of $5.91 about one hour into the session.

They were down 3 to 4 points dollar-neutral in early trade “if you can even find a bid,” a source said.

The notes pared their losses as the session progressed and were seen at 98.625 versus a stock price of $6.07 in the late afternoon.

They contracted 2.5 points dollar-neutral.

Uniti’s stock traded to a low of $5.58 and a high of $6.09 before closing the day at $5.97, a decrease of 1.73%.

There were heard to be issues during bookbuilding with putting the notes up on hedge, which resulted in the notes being placed in weak hands, a source said.

Mentioned in this article:

Chart Industries Inc. NYSE: GTLS

Chefs’ Warehouse Inc. Nasdaq: CHEF

Cutera Inc. Nasdaq: CUTR

EZCorp Inc. Nasdaq: EZPW

NextEra Energy Partners LP NYSE: NEP

Uniti Group Inc. Nasdaq: UNIT

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