T-Mobile mandatories price, skyrocket on debut; PG&E on deck; American Airlines crashes

By Abigail W. Adams

Portland, Me., June 24 – While the convertibles primary market slowed its record-setting pace on Wednesday, it did not stop, with one small offering launching.

Xeris Pharmaceuticals, Inc. plans to price $60 million of five-year convertible notes in a registered offering.

Jefferies LLC and SVB Leerink LLC are joint bookrunners for the deal, which carries a greenshoe of $9 million.

Concurrently, the company plans to price a secondary offering of $20 million shares.

The deal joins PG&E Corp. on the forward calendar.

PG&E remains on deck with its $1.5 billion offering of $100-par three-year equity units, which is slated to price after the market close on Thursday.

The units looked cheap based on underwriters’ assumptions and, much like T-Mobile’s mandatories, the units were structured to prevent any credit exposure to the company.

Meanwhile, the 2020 Cash Mandatory Exchangeable Trust priced a downsized $1.86 billion par of $1,000 three-year cash-settled mandatory securities tied to T-Mobile US, Inc. stock after the market close on Tuesday.

While the deal was downsized, the offering was in demand and the notes skyrocketed in the secondary.

While T-Mobile’s mandatories were strong on debut, it was an otherwise sloppy day in the secondary space with renewed concern over the surge in Covid-19 cases sparking a sell-off in equities.

American Airlines Group Inc.’s 6.5% convertible notes due 2025 continued their tailspin on an outright and dollar-neutral basis.

T-Mobile in demand

The 2020 Cash Mandatory Exchangeable Trust priced a downsized $1.86 billion par of $1,000 three-year cash-settled mandatory securities tied to T-Mobile stock after the market close on Tuesday.

Pricing came at the rich end of talk with a dividend of 5.25% and a threshold appreciation premium of 22.5%.

Price talk was for a dividend of 5.25% to 5.75% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

The deal was launched as a $3.2 billion offering, which included a 7.5% greenshoe.

While the mandatory offering was downsized, the concurrent equity offering was upsized.

T-Mobile priced a secondary offering of 143.39 million shares at $103.00 per share.

The initial size of the secondary offering was 133,548,303 shares.

There was strong demand for both the mandatory and equity offerings with the mandatory notes oversubscribed at the midpoint of talk, a source said.

However, the company opted to price at the rich end and shift proceeds to the common stock offering.

“Demand for the stock offering was crazy,” the source said.

T-Mobile stock also broached an all-time high in intraday trading on Tuesday.

Net proceeds from the common stock offering will be used by T-Mobile to repurchase an equal number of shares from a SoftBank Group Corp. subsidiary.

Proceeds from the exchangeable trust offering will also go to SoftBank with the securities part of SoftBank’s efforts to monetize a portion of its stake in T-Mobile.

Investors were enamored with the T-Mobile story and jumped at the chance to own equity in the company, a source said.

There are high hopes for the company’s prospects following its merger with Sprint.

The 5.25% notes skyrocketed out of the gate on their market debut on Wednesday. They were marked at 104 bid, 104.5 offered soon after the opening bell, a source said.

The notes continued to trade around 104.25 with T-Mobile stock around $106 shortly before 11 a.m. ET.

The 5.25% notes traded as high as 106 in intraday activity but returned to a 104-handle as the session progressed.

The notes expanded at least 4 points dollar-neutral early in the session, a market source said.

If they were hedged off of T-Mobile’s closing price of $107.16 on Tuesday, the notes expanded an additional 0.75 point, the source said.

While the notes came in on a dollar-neutral basis as the session progressed, they were still expanded several points heading into the close, another source said.

T-Mobile stock traded to a high of $109.14 and a low of $104.57 before closing the day at $108.43, an increase of 1.19%.

PG&E eyed

PG&E’s $1.5 billion offering of $100-par equity units remains on the forward calendar.

PG&E plans to price $1.5 billion in $100-par three-year equity units after the market close on Thursday.

Price talk is for a dividend of 5.5% to 6% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

The units will consist of a prepaid forward stock purchase contract and a zero-coupon U.S. treasury strip.

The deal was heard to be marketed with assumptions of Libor flat and a 27% to 30% vol. skew.

Using those assumptions, the deal looked 7.625 points cheap at the midpoint of talk, a source said.

Much like the T-Mobile mandatory, the deal was most likely structured so the treasury strip covered the cost of the dividend payments to prevent any credit exposure to the company, the source said.

American Airlines sinks

American Airlines’ 6.5% convertible notes due 2025 continued to “crash and burn” on Wednesday, a source said.

The 6.5% dropped to a 92-handle in high-volume activity.

They were contracted 6 points dollar-neutral since making their aftermarket debut on Tuesday, a source said.

“They’re not holding up at all,” a source said.

The notes remained the most actively traded convertible bond in the secondary space with $70 million in reported volume heading into the market close.

American Airlines stock traded to a high of $13.90 and a low of $12.83 before closing the day at $13.04, a decrease of 6.86%.

The travel industry in general was hard hit on Wednesday as states reimpose lockdowns due to a resurgence of Covid-19 cases.

Mentioned in this article:

American Airlines Group Inc. Nasdaq: AAL

PG&E Corp. NYSE: PCG

T-Mobile US, Inc. Nasdaq: TMUS

Xeris Pharmaceuticals Inc. Nasdaq: XERS

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