Morning Commentary: Sphere, Evolent, Merit convertibles eyed; Evergy strong on debut

By Abigail W. Adams

Portland, Me., Dec. 5 – The convertibles primary market remained hopping on Tuesday with three deals on deck after $1.2 billion priced the previous session.

Evolent Health Inc. plans to price $350 million of six-year convertible notes, Sphere Entertainment Co. plans to price $225 million of five-year convertible notes, and Merit Medical Systems Inc. plans to sell $550 million of five-year convertible notes after the market close on Tuesday.

The deals looked cheap based on underwriters’ assumptions and were expected to play to strong demand, sources said.

As market players eyed the new deals in the works, Evergy Inc.’s new convertible notes hit the secondary space.

The new paper was performing well on a mixed open for equities with small caps the laggards after the strong gains of the previous two sessions.

The Dow Jones industrial average was down 142 points, or 0.39%, the S&P 500 index was down 0.08%, the Nasdaq Composite index was up 0.37% and the Russell 2000 index was down 0.93% shortly before 11 a.m. ET.

Evergy’s new paper was holding outright and notching dollar-neutral gains in early trade.

Looking cheap

The convertibles primary was hopping on Tuesday with three deals slated to price after the market close. All deals looked cheap, sources said.

Evolent Health plans to price $350 million of six-year convertible notes with price talk for a coupon of 3.25% to 3.75% and an initial conversion premium of 37.5% to 42.5%.

The deal was heard to be in the market with assumptions of 450 basis points over SOFR and a 45% vol.

Using those assumptions, the deal looked about 5.5 points cheap at the midpoint of talk, a source said.

The deal was partly wall-crossed and largely covered at the time of launch, a source said.

Sphere Entertainment plans to price $225 million of five-year convertible notes with price talk for a coupon of 3.25% to 3.75% and an initial conversion premium to 25% to 30%.

The deal was heard to be in the market with assumptions of 800 bps over SOFR and a 45% vol.

Using those assumptions, the deal looked about 4 points cheap at the midpoint of talk.

Merit Medical Systems plans to price $550 million of five-year convertible notes with price talk for a coupon of 3.5% to 4% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The deal was heard to be in the market with assumptions of 350 bps over SOFR and a 27% vol.

Using those assumptions, the deal looked about 4.5 points cheap at the midpoint of talk.

Evergy performs well

Evergy priced an upsized $1.2 billion of four-year convertible notes after the market close on Monday at par with a coupon of 4.5% and an initial conversion premium of 22.5%.

Pricing came at the midpoint of talk for a coupon of 4.25% to 4.75% and at the cheap end of talk for an initial conversion premium of 22.5% to 27.5%.

While the market has been inundated with high-grade paper from utility companies, Evergy’s offering played to solid demand during book building and was performing well in the secondary space.

The notes were trading just above par with stock off early in the session, a source said.

They expanded dollar-neutral.

Evergy’s stock pared its losses and was trading at $50.46, a decrease of 0.02%, shortly before 11 a.m. ET.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.