EQT, Snap convertible offerings eyed; American Eagle Outfitters notes contract on debut

By Abigail W. Adams

Portland, Me., April 23 – The convertibles primary market continued to roll out the overnight deals with one pricing after the market close on Wednesday and two more on deck.

EQT Corp. plans to price $350 million of six-year convertible notes and Snap Inc. plans to price $750 million of five-year convertible notes after the market close on Thursday.

The deals modeled cheap, although sources had mixed reactions to the offerings.

As market players eyed the new deals in the pipeline, American Eagle Outfitters, Inc.’s newly priced 3.75% convertible notes due 2025 made their secondary market debut.

The notes had a lackluster reception in the aftermarket and were contracting on debut.

EQT on tap

EQT plans to price $350 million of six-year convertible notes after the market close on Thursday with price talk for a coupon of 1.75% to 2.25% and an initial conversion premium of 17.5% to 22.5%.

Underwriters were marketing the deal with assumptions of 750 basis points over Libor and a 40% vol., according to a market source.

However, those assumptions seemed tight, a source said.

Other sources pegged assumptions at 900 bps over Libor and a 45% vol., which modeled about 2.92 points cheap at the midpoint of talk.

The credit ratings of the Pittsburgh-based natural gas production company were downgraded to junk in mid-February.

The company went through another round of downgrades in early April with S&P Global Ratings lowering the issue-level ratings of the company’s unsecured debt to BB- from BB+ and Moody’s Investors Service downgrading the corporate family credit rating to Ba3 from Ba1.

The ratings agencies cited refinancing risk and weak commodity prices as reasons for the downgrade.

However, the natural gas producer’s stock recently rebounded and its preliminary earnings were better than expected, a source said.

The company also seemed to a have a good handle on its capital structure, another source said.

The deal looked “OK,” with the pricing decent and the company’s area of operation, the Marcellus region in the eastern United States, a good place to be. “I think it’s a good speculative play on gas,” the source said.

The deal should benefit both the company and investors, with the pricing favorable to both, another source said.

The deal was believed to be pricing toward the rich end of talk, according to a market source.

Snap eyed

Snap plans to sell $750 million of five-year convertible notes after the market close on Thursday with price talk for a yield of 0.25% to 0.75% and an initial conversion premium of 32.5% to 37.5%.

Snap’s new offering was in demand during bookbuilding, although some sources were not enamored with the offering.

With the coupon negligible, the deal “is a pure vol. play” that will mostly appeal to hedge accounts, a source said.

The deal was heard to be marketed with assumptions of 400 bps over Libor and a 40% vol.

Using those assumptions, the deal looked a little more than 3 points cheap at the midpoint of talk, a source said.

However, another source felt the 400 bps credit spread was too aggressive and pegged assumptions at 550 bps over Libor and a 45% vol.

Using those assumptions, the deal modeled about 1.625 points cheap at the midpoint of talk, the source said.

Snap’s 0.75% convertible notes due 2026 trade around the 550 bps level, the source said.

The new offering has a shorter maturity than the 2026 notes and should therefore have a slightly tighter spread.

However, the outstanding notes are a good benchmark to use, the source said.

Snap priced a $1.265 billion issue of the 0.75% convertible notes due 2026 in August 2019.

With Snap’s new offering in the works, the 0.75% notes were active and coming in after jumping the previous session.

The 0.75% notes due 2026 were changing hands just shy of 101 with about $14.5 million on the tape early in the session.

They dropped down to par heading into the market close.

The 0.75% notes jumped more than 12 points outright on Wednesday, closing the day on a 104-handle as stock soared 36%.

Snap’s newest convertible notes offering came on the heels of a better-than-expected first-quarter earnings report.

“The company is doing a good job with timing,” a source said.

Stock was coming in on Thursday due to the overnight offering.

Snap stock traded to a high of $16.86 and a low of $16.03 before closing the day at $16.06, a decrease of 5.53%.

American Eagle contracts

American Eagle’s newly priced 3.75% convertible notes due 2025 were contracting on their secondary market debut.

American Eagle priced $400 million of five-year convertible notes after the market close on Wednesday at par with a coupon of 3.75% and an initial conversion premium of 30%.

Pricing came at the cheap end of talk for a coupon of 3.25% to 3.75% and at the midpoint of talk for an initial conversion premium of 27.5% to 32.5%, according to a market source.

The 3.75% notes traded as low as 98.25 soon after the opening bell. However, the majority of prints were between 99 and par with stock off early in the session, a market source said.

While the notes closed out the day above par as stock rebounded, the notes were lagging on a dollar-neutral basis.

They were contracted 0.5 point to 1 point dollar-neutral, sources said.

American Eagle stock traded to a high of $7.10 and a low of $6.58 before closing the day at $6.99, an increase of 3.86%.

Mentioned in this article:

American Eagle Outfitters, Inc. NYSE: AEO

EQT Corp. NYSE: EQT

Snap Inc. NYSE: SNAP

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