Morning Commentary: Bloom Energy convertibles volatile outright, expand dollar-neutral

By Abigail W. Adams

Portland, Me., May 12 – The convertibles primary market capped the third busiest week of the year for new deal activity with Bloom Energy Corp.’s upsized $550 million offering of five-year green convertible notes.

The deal played to heavy demand during book building with allocations tight, a source said.

Bloom Energy’s offering lifted the primary market’s weekly tally to $2.775 billion, which priced over five deals – the third largest week of 2023 by dollar amount and second busiest week by number of transactions.

The primary market’s active week follows the May 1 week, which was the second busiest week of the year for new deal activity.

The steady flow of new deal activity is expected to continue with issuers emerging from earnings season blackouts and beginning to pull the trigger on capital raises.

The new deal activity comes amid continued uncertainty in markets with all eyes on debt ceiling negotiations.

Equity indexes continued to wobble with selling dragging indexes into negative territory after a strong start to the day.

The Dow Jones industrial average was down 50 points, or 0.15%, the S&P 500 index was down 0.23%, the Nasdaq Composite index was down 0.38% and the Russell 2000 index was down 0.17% shortly before 11 a.m. ET.

Bloom Energy’s new convertible notes dominated activity in the space with the notes accounting for nearly two-thirds of the $152 million in reported convertible bond trading volume about one hour into the session.

The notes were volatile on an outright basis but maintained a large dollar-neutral expansion amid the price movement.

Bloom Energy up on hedge

Bloom Energy priced an upsized $550 million of five-year green convertible notes after the market close on Thursday at par with a coupon of 3% and an initial conversion premium of 42.5%.

The notes priced in the middle of talk for a coupon of 2.75% to 3.25% and at the rich end of talk for an initial conversion premium of 37.5% to 42.5%, according to a market source.

There was strong demand for the offering with allocations tight, a source said.

The notes skyrocketed out of the gate to trade north of 103.

However, they dropped alongside stock as the session progressed with the notes wrapped around par shortly before 11 a.m. ET.

They expanded 1.5 points dollar-neutral.

There was $94 million in reported volume.

Bloom Energy’s stock traded down to $12.55, a decrease of 5.12%, shortly before 11 a.m. ET.

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