South Jersey, Kite Realty, Oil States on tap; Ford megadeal, IMAX, Rapid7 in focus

By Abigail W. Adams

Portland, Me., March 16 – The convertibles market was again awash in new paper with three deals totaling $610 million on deck for Wednesday, four deals totaling $2.85 billion slated to price after the market close and $1.45 billion in two deals making their aftermarket debut.

South Jersey Industries Inc. launched an offering of $300 million, or 6 million $50-par equity units, Oil States International Inc. launched an offering of $135 million of five-year convertible notes, and Kite Realty Group Trust launched an offering of $175 million of six-year exchangeable notes after the market close.

Ford Motor Co. plans to price $2 billion of five-year convertible notes (Ba2//BB+), IMAX Corp. plans to price $200 million of five-year convertible notes, Rapid7 Inc. plans to sell $500 million of six-year convertible notes and Centennial Resource Development Inc. plans to price $150 million of seven-year exchangeable notes after the market close on Tuesday.

The offerings continued to model cheap based on underwriters’ assumptions.

Meanwhile, as market players eyed the new deals in the works, new paper from Magnite and DraftKings Inc. hit the secondary space.

The new paper came on another rough day for the convertibles secondary space.

“The secondary is super sloppy,” a source said.

A volatile day for equities combined with accounts selling to make room for new paper drove the market down.

While DraftKings’ new notes were strong out of the gate, they closed the day below par although they were able to maintain a slight dollar-neutral expansion.

The calendar

The calendar continued to grow on Tuesday with three issuers launching deals after the market close.

South Jersey Industries plans to price $300 million, or 6 million $50-par equity units, after the market close on Wednesday with price talk for a yield of 8.25% to 8.75% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

BofA Securities Inc. is the bookrunner for the registered offering, which carries a greenshoe of $45 million, or 900,000 units.

Oil States International plans to sell $135 million of five-year convertible notes in a Rule 144A offering, according to a company news release.

The offering carries a greenshoe of $15 million.

Concurrently with the new offering, the company plans to repurchase for cash a portion of its 1.5% convertible notes due 2023 in privately negotiated transactions.

Further details were not available as of press time.

Kite Realty plans to price $175 million of six-year exchangeable notes in a Rule 144A offering, according to a company news release.

The notes will be issued by Kite Realty Group LP and exchangeable for Kite Realty Group shares.

The offering carries a greenshoe of $25 million.

Further details were not available as of press time.

Ford’s megadeal

Ford plans to price $2 billion of five-year convertible notes after the market close on Tuesday with price talk for a fixed coupon of 0% and an initial conversion premium of 40% to 45%, according to a market source.

The deal was heard to be in the market with assumptions of 225 basis points over Libor and a 40% vol., according to a market source.

Using those assumptions, the deal looked 1.99 points cheap at the midpoint of talk.

The deal was believed to be pricing on the cheap with accounts beginning to push back against aggressive terms given the poor performance of some recent deals that priced with 0% coupons.

Ford became a fallen angel, or junk-rated company, in 2020.

The deal was heard to be attracting cross-over investors interested in establishing hedges against other securities.

“Guys who are playing the CDS [credit default swap] want to get involved,” a source said.

IMAX eyed

IMAX plans to price $200 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.5% to 1% and an initial conversion premium of 30% to 35%, according to a market source.

The deal was heard to be in the market with assumptions of 450 bps over Libor and a 42% vol., according to a market source.

Using those assumptions, the deal looked about 2 points cheap at the midpoint of talk.

Centennial’s exchange

Centennial Resource plans to sell $150 million of seven-year exchangeable notes after the market close on Tuesday with price talk for a coupon of 2.75% to 3.25% and an initial exchange premium of 30% to 35%, according to a market source.

The notes will be issued by Centennial Resource Production LLC and exchangeable for Centennial Resource Development shares.

The deal was heard to be in the market with assumptions of 725 bps over Libor and a 40% vol.

Using those assumptions, the deal looked about 4 points cheap at the midpoint of talk.

“Anything with a 3% coupon should do well,” a source said.

The deal was the most optically attractive of the deals in the pipeline. However, the company is from the embattled oil and gas sector.

Rapid7’s buyback

Rapid7 plans to price $500 million of six-year convertible notes after the market close on Tuesday with price talk for a coupon of 0% to 0.25% and an initial conversion premium of 30% to 35%, according to a market source.

The deal was heard to be in the market with assumptions of 300 bps over Libor and a 35% vol., according to a market source.

Using those assumptions, the deal looked about fair value.

Short interest in the name is 11.03%, a source said.

Concurrently, the company will repurchase a portion of its 1.25% convertible notes due 2023 in privately negotiated transactions.

The 1.25% notes were changing hands at 193.125 on Monday, according to Trace data.

Magnite flat

Magnite priced $350 million of five-year convertible notes after the market close on Monday at par at the midpoint of talk with a coupon of 0.25% and an initial conversion premium of 40%.

Price talk was for a coupon of 0% to 0.5% and an initial conversion premium of 37.5% to 42.5%, according to a market source.

The notes were trading around par in the aftermarket.

They expanded 0.25 point dollar-neutral, a source said.

Magnite’s stock traded to a high of $46.66 and a low of $43.27 before closing the day at $45.30, a decrease of 0.72%.

DraftKings volatile

DraftKings sold an upsized $1.1 billion of seven-year convertible notes after the market close on Monday at par with a coupon of 0% and an initial conversion premium of 40%.

Pricing came at the rich end of talk for a coupon of 0% to 0.5% and at the midpoint of talk for an initial conversion premium of 37.5% to 42.5%, according to a market source.

The notes were volatile in the secondary space.

The notes started the day strong.

The new paper was changing hands between 102.5 and 103 early in the session and expanded 1.5 to 2 points dollar-neutral, a source said.

However, the notes crumbled alongside stock as the session progressed.

While the notes were able to maintain a slight dollar-neutral expansion at the market close, they did not hold up well with the stock move, a source said.

The 0% notes due 2028 were changing hands at 99.5 in the late afternoon.

They stood poised to close the day with a 0.5 point dollar-neutral expansion.

DraftKings’ stock traded to a high of $70.36 and a low of $66.01 before closing the day at $67.14, a decrease of 0.9%.

Mentioned in this article:

Centennial Resource Development Inc. Nasdaq: CDEV

DraftKings Inc. Nasdaq: DKNG

Ford Motor Co. NYSE: F

IMAX Corp. NYSE: IMAX

Kite Realty Group Trust NYSE: KRG

Magnite Nasdaq: MGNI

Oak Street Health Inc. NYSE: OSH

Oil States International Inc. NYSE: OIS

Rapid7 Inc. Nasdaq: RPD

South Jersey Industries Inc. NYSE: SJI

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