DTE Energy launches $1.15 billion mandatory; Winnebago offers $270 million convertible

By Rebecca Melvin

New York, Oct. 28 – After a fairly quiet session when market players were eyeing earnings reports and the S&P 500 stock index drifted higher to a record close, two new deals launched in the convertibles space after the market close on Monday.

DTE Energy Co. announced a $1.15 billion registered underwritten public offering of equity units and Winnebago Industries Inc. said it plans to price $270 million of convertible senior notes due 2025.

Inputs for the valuation calculation on the Winnebago convertible were heard at 550 basis points over Libor for the credit spread and a 40% vol.

Both deals were expected to price after the market close on Tuesday. The proceeds of both deals are earmarked to fund acquisitions, and the common shares of both companies bumped lower when the deals were announced.

DTE is also pricing an offering of $300 million of common stock. The mandatory equity units include a greenshoe of $150 million.

The outsized unit deal was being talked to yield 6% to 6.5% with an initial conversion premium of 20% to 25%.

Barclays, BofA Securities Inc., J.P. Morgan Securities LLC and Wells Fargo Securities LLC are the joint bookrunners of the mandatory offering, which is expected to price after the market close on Tuesday.

The $50-par units will hold a contract to purchase common stock and a 1/20th, or 5%, undivided beneficial ownership interest in DTE’s 2019 series F notes due 2025 with a $1,000-par.

There is standard dividend protection above the current $1.0125 dividend.

Proceeds will be used for the purchase of midstream natural gas assets and for general corporate purposes.

DTE is a Detroit-based diversified energy company.

Winnebago plans to price $270 million of convertible senior notes due 2025 that were being talked to yield 1.5% to 2%, with an initial conversion premium of 27.5% to 32.5%, according to market sources.

There is a $30 million greenshoe for the Rule 144A offering, which is being sold via joint bookrunners Goldman Sachs & Co. LLC and BMO Capital Markets Corp.

In connection with the notes offering, the company expects to enter into privately negotiated convertible note hedge transactions with one or more initial purchasers of the notes. It will also enter into warrant transactions with option counterparties at a higher strike price relating to the same number of shares of the company’s common stock into which the bonds will be converted.

The proceeds will be used to fund the cost of entering into the convertible note hedge transactions and for the company’s previously announced acquisition of Newmar Corp. If the Newmar acquisition is not consummated, the proceeds will be used for fees related to cancelation and for general corporate purposes.

They have net share settlement and takeover protection.

Back in established issues, Pinduoduo Inc.’s convertibles, which have become a regular feature of trade of late, were active in the early going on Monday, which starts a week likely to be influenced by earnings reports, a rate cut widely expected from the Federal Open Market Committee meeting and month end.

Despite these various influences, the market was not very busy, a New York-based trader said.

This week the FOMC begins its regularly scheduled two-day policy meeting on Tuesday. Earnings continue in full swing, and month end hits on Thursday, which is Halloween.

“There is a lot of stuff going on, but it’s been pretty quiet. It really takes the deals to shake the market up,” the trader said. New issuance has not been forthcoming in the middle of earnings season.

Pinduoduo’s 0% convertibles due 2024 were trading up in step with their underlying shares in the early going and were the top volume name in trade, according to Trace data. The bonds were up 1.7 points to 117.375 versus an underlying share price that was up 70 cents, or 1.7%, at $41.50.

Tesla Inc.’s 2% convertibles due 2024 were also trading actively and were up 1.6 points to 127.75 with shares of the electric carmaker up $5.30, or 1.6%, at $333.36.

ON Semiconductor Corp. reported third-quarter results that boosted the underlying shares of the Phoenix-based semiconductor company by 7% to $20.54 on Monday. The company missed earnings estimates, but results were in line on revenue. The ON 1.625% convertible notes due 2023 were not seen in trade.

Mentioned in this article:

DTE Energy Co. NYSE: DTE

ON Semiconductor Corp. Nasdaq: ON

Pinduoduo Inc. NYSE: PDD

Tesla Inc. Nasdaq: TSLA

Winnebago Industries Inc. NYSE: WGO

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