Clarus convertibles offering pulled; American Airlines notes improve; Chegg active

By Abigail W. Adams

Portland, Me., Oct. 22 – The convertibles primary market had one small deal in the works on Thursday.

Clarus Corp. planned to price $85 million of six-year convertible notes after the market close on Thursday but later withdrew the offering, citing market volatility.

The offering had looked cheap to fair value based on the assumptions used.

However, it was expected to have a limited audience, a source said.

Meanwhile, trading activity in the secondary space was again muted as equity benchmarks see-sawed between gains and losses throughout Thursday’s session.

“It’s up and down and up and down,” a source said.

After another tumultuous day of trading, the Dow Jones industrial average closed the day up 152.84 points, an increase of 0.54%, the S&P 500 closed the day up 0.52% and the Nasdaq composite closed the day up 0.19%.

Chegg Inc.’s 0.125% convertible bonds due 2025 were active on Thursday although the notes were little changed.

American Airlines Group Inc.’s 6.5% convertible notes due 2025 were active with the notes improving on a dollar-neutral, or hedged, basis following its earnings report.

Clarus offering withdrawn

Clarus planned to price $85 million of six-year convertible notes after the market close on Thursday but later withdrew the offering.

The convertibles had been offered with price talk for a coupon of 3% to 3.5% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

Using a credit spread of 750 basis points over Libor and a 37.5% vol., the deal looked 4.4 points cheap at the midpoint of talk, a source said.

However, the stock of the Salt Lake City-based outdoor equipment and lifestyle products company was expected to have a difficult borrow.

Adjusting the credit spread to 1,000 bps over Libor to account for problems with the borrow and liquidity issues reduces the fair market value of the deal to par, a source said.

Using a credit spread of 950 bps, the deal looked 0.25 point cheap.

However, the small offering was expected to have a limited audience and was most likely wall-crossed, sources said.

Chegg active

Chegg’s 0.125% convertible notes due 2025 were among the most actively traded issues during Thursday’s session.

However, while the notes were active, they were little changed on the day, a source said.

The 0.125% notes were changing hands at 175.5 in the late afternoon.

The education technology company’s stock traded to a high of $88.72 and a low of $84.57 before closing the day at $86.55, an increase of 0.44%.

Chegg is scheduled to report its earnings after the market close on Monday.

American Airlines improves

American Airlines Group’s 6.5% convertible notes due 2025 were improving on an outright and dollar-neutral basis on the heels of the struggling airline’s earnings report.

The notes were changing hands at 94.75.

They climbed to 97.5 by the late afternoon.

The notes were improved about 0.5 point dollar-neutral, a source said.

American Airlines’ stock was volatile on Thursday, trading to a low of $12.42 and a high of $13.29 before closing the day at $13.115, an increase of 3.18%.

While American Airlines reported a net loss of $2.4 billion, earnings beat analyst expectations.

American reported a loss per share of $5.54 versus analyst expectations for a loss of $5.86.

Revenue was $3.17 billion versus analyst expectations for revenue of $2.81 billion, CNBC reported.

Cash burn was reduced to $44 million a day versus $58 million a day in the second-quarter.

Despite better-than-expected earnings, stock traded down early in the session. However, it reversed course and turned positive following an upbeat conference call and on continued stimulus hope.

On its conference call, the airline announced plans to make debt repayment a priority once revenue levels return to normal with the intention of pre-paying up to 40% of its current debt, Prospect News reported.

Mentioned in this article:

American Airlines Group Inc. Nasdaq: AAL

Chegg Inc. NYSE: CHGG

Clarus Corp. Nasdaq: CLAR

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