Morning Commentary: Primary floodgates open; $2.7 billion convertible notes to price

By Abigail W. Adams

Portland, Me., Sept. 7 – The convertibles primary market unleashed the floodgates upon return from the Labor Day holiday in the United States with the truncated Sept. 5 week poised to be the second busiest week of the year for new deal activity by dollar amount and the busiest by number of transactions.

Four deals totaling $2.7 billion are slated to price after the market close on Thursday as $1.375 billion in new paper made its way into the secondary space.

Corporate Office Properties Trust plans to price $300 million of five-year exchangeable notes, Advanced Energy Industries Inc. plans to price $500 million of five-year convertible notes and Vishay Intertechnology Inc. plans to sell $600 million of seven-year convertible notes (BB+).

In a deal that claimed the latest launch time in recent history, Seagate HDD Cayman also plans to price $1.3 billion of five-year notes exchangeable for Seagate Technology Holdings plc shares post-close Thursday.

The deal was announced after 6:30 p.m. ET on Wednesday, taking many market players by surprise.

The deals modeled cheap based on underwriters’ assumptions. However, sources questioned the ability of the market to digest the sudden onslaught of paper.

As market players eyed the new deals in the pipeline, new paper from CSG Systems International Inc. and Liberty Media Corp. made their aftermarket debut.

The new paper had a lackluster start in the secondary space with CSG falling flat on an outright and dollar-neutral basis and Liberty Media trading below par.

Seagate ahead

Seagate plans to price $1.3 billion of five-year notes exchangeables after the market close on Thursday with price talk for a coupon of 3.25% to 3.75% and an initial exchange premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of 275 basis points over SOFR and a 35% vol.

Corporate Office in focus

Corporate Office Properties Trust plans to price $300 million of five-year exchangeable notes after the market close on Thursday with price talk for a coupon of 4.75% to 5.25% and an initial exchange premium of 22.5% to 27.5%.

The deal was heard to be in the market with assumptions of 265 bps over SOFR and a 22% vol.

Using those assumptions, the deal looked about 2.3 points cheap at the midpoint of talk.

The deal looked good with Corporate Office Properties an investment-grade name and some viewing the vol. assumption as conservative.

However, “everyone’s a little scared of the space,” a source said.

The deal from the commercial properties REIT will be a good test to determine if others from the sector will be able to get deals done, the source said.

Advanced Energy eyed

Advanced Energy plans to price $500 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 2.25% to 2.75% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of 300 bps over SOFR and a 33% vol.

Using those assumptions, the deal looked about 2.5 points cheap at the midpoint of talk, a source said.

Vishay on tap

Vishay Intertechnology plans to sell $600 million of seven-year convertible notes (BB+) after the market close on Thursday with price talk for a fixed coupon of 2.25% and an initial conversion premium of 20% to 25%.

The deal was heard to be in the market with assumptions of 275 bps over SOFR and a 30% vol.

The company was a decent credit, and while there was some cheapness in the deal, it did not model wonderfully, a source said.

CSG flat on debut

CSG Systems priced an upsized $375 million of five-year convertible notes after the market close on Wednesday at par at the rich end of talk with a coupon of 3.875% and an initial conversion premium of 32.5%.

Price talk was for a coupon of 3.875% to 4.375% and an initial conversion premium of 27.5% to 32.5%.

The greenshoe was downsized to $50 million.

The initial size of the offering was $350 million with a greenshoe of $52.5 million.

The new paper fell flat on debut.

The notes were changing hands in the 100 to 100.25 context with stock largely unchanged on the morning.

“They’re just hanging out,” a source said.

CSG’s stock was seen at $53.21, a decrease of 0.76%, shortly before 11 a.m. ET.

Liberty Media below par

Liberty Media priced an upsized $1 billion of exchangeable senior debentures due 2053 for Live Nation Entertainment stock after the market close on Wednesday at par with a coupon of 2.375% and an initial exchange premium of 30%.

Pricing came toward the cheap end of talk for a coupon of 2% to 2.5% and at the cheap end of talk for an initial exchange premium of 30% to 35%.

While the deal “gave a little” on the coupon and premium during pricing, the notes traded down out of the gate, a source said.

The notes were changing hands in the 99.25 to 99.75 context early in the session a source said.

Live Nation’s stock was trading at $79.87, a decrease of 1.05%, shortly before 11 a.m. ET.

The deal came as a refinancing with proceeds used to repurchase $713 million in principal of Liberty Media’s 0.5% exchangeable debentures due 2050 in privately negotiated transactions.

Remaining proceeds will be used to settle exchanges or redeem the notes which become freely callable on or after Sept. 1, 2024 and are also putable on Sept. 1, 2024.

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