Morning Commentary: Envestnet, Parsons convertible notes expand; five deals on deck

By Abigail W. Adams

Portland, Me., Aug. 18 – The convertibles primary market resumed its record-setting pace with two deals totaling $800 million pricing after the market close on Monday and five deals totaling $2.075 billion slated to price after the market close on Tuesday.

Envestnet Inc. priced $450 million of five-year convertible notes and Parsons Corp. priced an upsized $350 million of five-year convertible notes after the market close on Monday.

Envestnet’s new convertible notes skyrocketed on their aftermarket debut.

While the new paper from Parsons was trading on a par-handle, they were expanding dollar-neutral.

As the new paper made its aftermarket debut, market players were eyeing the onslaught of deals set to price after the market close on Tuesday.

Middleby Corp. plans to price $550 million of five-year convertible notes, Cinemark Holdings Inc. plans to sell $400 million in five-year convertible notes, Chegg Inc. plans to bring $750 million of six-year convertible notes, Hannon Armstrong Sustainable Infrastructure Capital Inc. plans to price $125 million of three-year convertible notes and Antero Resources Corp. plans to sell $250 million of six-year convertible notes after the market close on Tuesday.

The deals continued to model cheap based on underwriters’ assumptions. However, several of the credits were speculative, a source said.

Envestnet prices

Envestnet priced $450 million of five-year convertible notes after the market close on Monday at par at the rich end of talk with a coupon of 0.75% and an initial conversion premium of 35%.

Price talk was for a coupon of 0.75% to 1.25% and an initial conversion premium of 30% to 35%, according to a market source.

The 0.75% convertible notes skyrocketed in the aftermarket.

They were up more than 3 points outright with stock largely flat early in the session.

The notes were marked at 103 bid, 103.75 offered versus a stock price $79.07 about one hour after the opening bell.

Envestnet stock was changing hands at $79.06, an increase of 0.013%, shortly before 11 a.m. ET.

Parsons upsizes

Parsons priced an upsized $350 million of five-year convertible notes after the market close on Monday at par with a coupon of 0.25% and an initial conversion premium of 35%.

Pricing came at the midpoint of talk for a coupon of 0% to 0.5% and at the rich end of talk for an initial conversion premium of 30% to 35%, according to a market source.

While the notes were trading with a par-handle on an outright basis, they were expanding dollar-neutral.

The notes were changing hands in a range of par to 100.875 with stock off almost 1%, a source said.

Parsons stock was changing hands at $33.03, a decrease of 0.75%, shortly before 11 a.m. ET.

Chegg eyed

Chegg plans to sell $750 million of six-year convertible notes after the market close on Tuesday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 32.5% to 37.5%.

The deal was heard to be in the market with assumptions of 400 bps over Libor and a 40% vol., a source said.

Using those assumptions, the deal looked 1.5 points cheap at the midpoint of talk.

The online textbook rental, tutoring, scholarship and internship matching company is a repeat issuer of convertible notes.

Proceeds will be used in part to fund the repurchase or exchange of the company’s existing 0.25% convertible notes due 2023.

Cinemark ahead

Cinemark Holdings plans to price $400 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 4.5% to 5% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be marketed with assumptions of 1,350 bps over Libor and a 45% vol., a source said.

Using those assumptions, the deal looked 3.57 points cheap at the midpoint of talk.

The theater chain operator is a highly speculative credit, a source said.

Middleby on tap

Middleby plans to sell $550 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.75% to 1.25% and an initial conversion premium of 30% to 35%.

The deal was heard to be in the market with assumptions of 400 bps over Libor and a 35% vol., according to a market source.

Using those assumptions, the deal looked 3.64 points cheap at the midpoint of talk.

Antero Resources on deck

Antero Resources plans to price $250 million of six-year convertible notes after the market close on Tuesday with price talk for a coupon of 3.75% to 4.25% and an initial conversion premium of 20% to 25%.

Underwriters were marketing the deal with assumptions of 1,500 bps over Libor and a 45% vol., sources said.

Using those assumptions, one source pegged the deal 3.17 points cheap at the midpoint of talk.

However, another source pegged the credit spread at 1,669 bps over Libor, which reduced the cheapness of the deal.

Using a wider spread, the fair value of the deal modeled out to 101.46 points.

The oil and gas company is a well-known name in junkbondland but is making its debut appearance in the convertibles market.

Hannon Armstrong to price

Hannon Armstrong Sustainable Hannon Infrastructure Capital plans to price $125 million of three-year convertible notes after the market close on Tuesday with price talk for a coupon of 0% and an initial conversion premium of 25% to 30%.

The deal was heard to be marketed with assumptions of 275 bps over Libor and a 36% vol., a source said.

Using those assumptions, the deal looked 2.27 points cheap at the midpoint of talk.

The deal is being marketed as a “green convertible,” making it the sixth green convertible this year.

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