Morning Commentary: Ormat convertibles offering eyed; Expedia active in early trading

By Abigail W. Adams

Portland, Me., June 22 – While new deal activity has slowed in the midst of tightening financial conditions, the convertibles primary market continued to churn out new offerings with equity-linked financing a cheaper alternative to straight debt.

In its convertible market debut, geothermal energy company Ormat Technologies Inc. plans to price $350 million of five-year green convertible notes after the market close on Wednesday.

Price talk is for a coupon of 2.25% to 2.75% and an initial conversion premium of 30% to 35%.

Underwriters were marketing the deal with assumptions of 350 basis points over Libor and a 35% vol., according to market source.

Using those assumptions, sources pegged the deal 2.68 points to 2.75 points cheap at the mid-point of talk.

The deal is coming with a little happy meal with up to $25 million of proceeds to be used to repurchase common stock in privately negotiated transactions, sources said.

While the share repurchase complicates the borrow, the borrow is good with plenty of availability.

While market players eyed the new deal in the works, there was an uptick of activity in secondary trading as equity markets turned positive after a red open.

The Dow Jones industrial average was up 106 points, or 0.36%, the S&P 500 index was up 0.49%, the Nasdaq Composite index was up 0.92% and the Russell 2000 index was up 0.16% shortly before 11 a.m. ET.

There was $91 million in reported volume about one hour into the session with several travel names on the tape.

Expedia Inc.’s 0% convertibles due 2026 (Baa3/BBB-/BBB-) continued to see heavy volume with the notes again weaker.

The 0% convertible notes were down about 1 point outright.

They were trading at 91 versus a stock price of $97.85 early in the session.

There was $18 million in reported volume.

Expedia’s stock was changing hands at $98.48, a decrease of 0.28%, shortly before 11 a.m. ET.

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