Morning Commentary: Aphria, Aqua America convertible offerings eyed in primary market

By Abigail W. Adams

Portland, Me., April 17 – The convertibles primary market was active despite the truncated holiday week with $1.03 billion set to price in two deals after the market close on Wednesday.

Aphria Inc. plans to price $300 million of five-year convertible notes with price talk for a coupon of 4.75% to 5.25% and an initial conversion premium of 20% to 25%, according to a market source.

The Rule 144A and Regulation S deal is being marketed with a credit spread of 800 basis points over Libor and a 40% vol., according to a market source.

Using those assumptions, the deal was pegged as 2 points cheap at the midpoint of talk.

The borrow on the stock is about 5% and is limited. One source described the borrow as practically non-existent.

Aphria is the latest cannabis company to tap the convertibles space in a dollar-denominated deal with the sector becoming a formidable portion of the universe.

After an extended roadshow, Aqua America Inc. plans to price $725 million of $50-par three-year tangible equity units after the market close on Wednesday with price talk for a dividend of 6% to 6.5% and a threshold appreciation price of 17.5% to 22.5%.

While some sources did not find tangible equity units appealing due to their limited downside protection, the deal from the Bryn Mawr, Pa.-based water utility offered good exposure to the sector, other sources said.

With several mandatory equity units retiring this year, the new paper is also needed to fill a void in the space.

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