Morning Commentary: Chefs’ Warehouse, Chart convertibles on deck; Uniti ‘a disaster’

By Abigail W. Adams

Portland, Me., Dec. 8 – The convertibles primary market continued to unleash deals at a record-setting clip with $550 million in two deals slated to price after the market close on Thursday after $1.1 billion cleared the market post-close Wednesday.

Chart Industries Inc. plans to price $300 million $50-par depositary shares representing a 1/20th interest in $1,000 par three-year series B mandatory convertible preferred stock, and Chefs’ Warehouse Inc. plans to price $250 million of six-year convertible notes after the market close on Thursday.

While the deals continued to model cheap, the demand for new paper seen early in the week dissipated with the deal that priced post-close Wednesday struggling during bookbuilding and in the secondary space, sources said.

“This is too much, too quickly,” a source said.

“There’s an absorption issue here,” another source said.

NextEra Energy Partners LP’s offering of $500 million 3.5-year convertible notes priced well wide of talk and were underwater in secondary market activity.

Uniti Group Inc.’s offering of five-year convertible notes priced cheap after experiencing pushback during bookbuilding and were a “disaster” in the aftermarket, sources said.

Cutera Inc.’s $100 million offering of seven-year convertible notes priced at the midpoint of talk but there was no market for the notes on the Street.

While EZCorp Inc.’s $200 million offering of seven-year convertible notes were under fire with an equity investor calling for a rescinding of the offering, the deal was “oddly the highlight” with the offering upsizing and the notes performing well in the aftermarket, a source said.

Post-close

Chart Industries plans to price $300 million $50-par depositary shares representing a 1/20th interest in $1,000 par three-year series B mandatory convertible preferred stock after the market close on Thursday with price talk for a dividend of 6.75% to 7.25% and an initial conversion premium of 17.5% to 22.5%.

The deal was heard to be in the market with assumptions of a 650 basis points credit spread and a 55% to 52% vol. skew, a source said.

Chefs’ Warehouse plans to price $250 million of six-year convertible notes after the market close on Thursday with price talk for a coupon of 2.125% to 2.625% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of a 575 bps credit spread and a 40% vol.

Using those assumptions, the deal looked just north of 1 point cheap at the midpoint of talk, a source said.

NextEra comes wide

NextEra sold $500 million of 3.5-year convertible notes after the market close on Wednesday at 97 with a coupon of 2.5% to yield 3.415% and an initial conversion premium of 20%.

Pricing came in line with talk for a fixed coupon of 2.5% and a fixed initial conversion premium of 20% and wide of initial talk for a reoffer price of 98 to 98.25, according to a market source.

Several factors drove the repricing, such as the break-even common stock dividend and the hit stock took as a result of the overnight offering.

“These overnight deals are too aggressive,” a source said.

The notes struggled in secondary market activity with the notes trading down to 96.5, a source said.

NextEra’s stock was changing hands at $75.99, a decrease of 3.94%, shortly after 11 a.m. ET.

EZCorp outperforms

While an equity investor called for a rescinding of the offering, EZCorp’s deal was “oddly the highlight” of the rush of issuance with the notes upsizing and performing well in the aftermarket.

EZCorp priced an upsized $200 million of seven-year convertible notes after the market close on Wednesday at par at the midpoint of talk with a coupon of 3.75% and an initial conversion premium of 30%.

Price talk was for a coupon of 3.5% to 4% and an initial conversion premium of 27.5% to 32.5%.

The greenshoe was also upsized to $30 million.

The initial size of the offering was $175 million with a greenshoe of $25 million.

The deal was putting in a solid performance in the secondary space with the notes changing hands at 100.75 early in the session, prior to the drop in stock.

EZCorp’s stock was slightly in the red early in the session but dropped to $8.31, a decrease of 4.71%, shortly before 11 a.m. ET.

Cutera at the mids

Cutera priced $100 million of seven-year convertible notes after the market close on Wednesday at par at the midpoint of talk with a coupon of 4% and an initial conversion premium of 17.5%.

Price talk was for a coupon of 3.75% to 4.25% and an initial conversion premium of 15% to 20%.

There was little to no market for the notes in the secondary, a source said.

Cutera’s stock was seen at $45.39, a decrease of 8.6%, shortly before 11 a.m. ET.

Uniti ‘a disaster’

Uniti sold $300 million of five-year convertible notes after the market close on Wednesday at par at the cheap end of talk with a coupon of 7.5% and an initial conversion premium of 20%.

Price talk was for a coupon of 7% to 7.5% and an initial conversion premium of 20% to 25%, according to a market source.

The deal was heard to have struggled during bookbuilding and was “a disaster” in secondary market activity, sources said.

The notes traded as low as 97 out of the gate and were changing hands at 97.5 versus a stock price of $5.91 about one hour into the session.

They were down 4 to 5 points dollar-neutral “if you can even find a bid,” a source said.

The notes also struggled to find a market with few buyers for the notes.

Uniti’s stock was trading at $6, a decrease of 1.23%, shortly before 11 a.m. ET.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.