Morning Commentary: Hannon Armstrong exchangeable notes on deck

By Abigail W. Adams

Portland, Me., April 7 – The convertibles primary market broke its silence on Thursday with one new offering on deck.

Hannon Armstrong Sustainable Infrastructure Capital Inc. plans to price $200 million of 0% green exchangeable bonds due 2025 with price talk for a redemption price at maturity of 107.1% to 108.7% for a yield of 2.25% to 2.75% and an initial conversion premium of 35% to 40%.

The deal was being marketed with assumptions of 215 basis points over Libor and a 38% vol., a source said.

Using those assumptions, the deal looked about 2 points cheap assuming an accretion of 2.5% and an initial conversion premium of 37.5%.

The structure of the deal was unique with Rule 144A deals with a 0% coupon and an accretion rare, a source said.

However, the exchangeable notes are BB+ rated paper and will be going into the indexes, a source said.

“Outright guys are going to want it,” a source said.

The exchangeable notes also rank higher in the capital structure than the company’s outstanding 0% convertible notes due 2023 because the proposed convertible notes are exchangeable through one of the company’s subsidiaries, a source said.

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