American Water convertible notes offering on deck; Wolfspeed active; Lucid gains

By Abigail W. Adams

Portland, Me., June 26 – The convertible bond primary market launched the final week of the second quarter with a sizeable offering.

In the latest in a wave of investment-grade issuance, American Water Capital Corp. plans to price $900 million in three-year convertible notes (Baa1/A) after the market close on Monday.

The deal looked cheap based on underwriters’ assumptions and played to solid demand with books closing in the early afternoon.

However, there was not much excitement about the deal given the market saturation with high-grade paper.

Meanwhile, the secondary space was anemic on Monday with equity indexes wavering between gains and losses before closing mixed.

The Dow Jones industrial average closed Monday down 13 points, or 0.04%, the S&P 500 index closed down 0.45%, the Nasdaq Composite index closed down 1.16% and the Russell 2000 index closed up 0.09%.

There was $33 million in reported convertible bond trading volume about one hour into the session and $289 million on the tape about one hour before the market close.

While the broader market was quiet, topical news did spark activity in some outstanding issues.

Wolfspeed Inc.’s convertible notes were in focus following news of a $2 billion capital raise from an Apollo-led investor group.

Lucid Group Inc.’s 1.25% convertible notes due 2026 eliminated losses from the previous session and resumed their upward momentum following news of a partnership with Aston Martin.

American Water eyed

American Water plans to price $900 million in three-year convertible notes (Baa1/A) with price talk for a coupon of 3.375% to 3.875% and an initial conversion premium of 22.5% to 27.5%.

The deal was being marketed with assumptions of 100 basis points over SOFR and a 19% vol.

Using those assumptions, sources pegged the deal between 1.375 to 1.625 points cheap at the midpoint of talk, a source said.

The pricing was reasonable and largely in line with the other three-year investment grade convertible notes to price in the past year, which averaged about 1.5 points cheap, a source said.

“You can’t expect high valuations on short-duration, IG paper,” the source said.

The deal played to solid demand with books closing in the early afternoon.

While the market has long hoped for an uptick in investment-grade rated paper, excitement over IG deals has waned given the saturation in the market.

However, American Water is the first paper to come with an A rating.

Wolfspeed’s capital raise

Wolfspeed’s busted convertible notes were on the rise following news of a private capital raise of $2 billion.

Wolfspeed’s 0.25% convertible notes due 2028 jumped 2 points.

They were changing hands at 75.125 with a yield of about 6.5% in the late afternoon, according to a market source.

There was $15 million in reported volume.

Wolfspeed’s 1.875% convertible notes due 2029 were changing hands at 75.625 in the late afternoon.

They were also trading with a yield of about 6.5%.

Wolfspeed stock traded to a low of $50.42 and a high of $52.88 before closing the day at $50.80, an increase of 2.77%.

Wolfspeed was in focus following news the company had raised $1.25 billion through the sale of seven-year senior secured notes to an Apollo-led investor group with the option to raise an additional $750 million.

The senior notes priced at 96 and will bear interest of 9.875% for three years, 10.875% in the fourth year and 11.875% thereafter, Prospect News reported.

Lucid gains

Lucid’s 1.25% convertible notes due 2026 resumed their upward momentum on Monday following news of a partnership with luxury automaker Aston Martin.

The 1.25% notes gained 2.5 points outright.

They were changing hands at 62 versus a stock price of $5.81 in the late afternoon.

The yield was just shy of 16%.

There was $11 million in reported volume.

Lucid stock traded to a low of $5.55 and a high of $6.28 before closing the day at $5.55, an increase of 1.46% over Friday’s close of $5.47.

The notes saw a resurgence of buying interest after falling 1 point outright the previous session following news of the EV-startup’s Aston Martin partnership.

Lucid will supply the electric powertrains and battery systems for Aston Martin’s planned line of electric vehicles.

Lucid’s notes have made strong gains since the struggling car company priced a $3 billion follow-on offering in early June.

The notes have expanded 3 to 4 points dollar-neutral since the announcement.

Mentioned in this article:

American Water Capital Corp. NYSE: AWK

Lucid Group Inc. Nasdaq: LCID

Wolfspeed Inc. NYSE: WOLF

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