Ormat convertibles offering eyed; BofA synthetics dominate the tape; Expedia weaker

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.

The deal looked cheap based on underwriters’ assumptions. However, some sources felt the credit spread was tight.

Meanwhile, there was an uptick of activity in the secondary space on a volatile day for equities.

Indexes wavered between large gains and losses throughout the session before closing the day with slight losses.

The Dow Jones industrial average closed Wednesday down 47 points, or 0.15%, the S&P 500 index closed down 0.13%, the Nasdaq Composite index closed down 0.15% and the Russell 2000 index closed down 0.02%.

There was $91 million in reported convertibles trading volume about one hour into the session and $429 million on the tape about one hour before the market close.

BofA Finance LLC’s cash-settled equity-linked notes dominated the tape.

BofA’s 0.125% cash-settled notes tied to Charter Communications Inc. due Sept. 1, 2022 saw heavy volume as the notes approach their maturity.

BofA’s 0.25% cash-settled equity-linked notes due May 1, 2023 tied to Voya Financial, Inc. also saw heavy volume.

Expedia Inc.’s 0% convertibles due 2026 (Baa3/BBB-/BBB-) continued to weaken in heavy trading.

Ormat in focus

Ormat plans to price $350 million of five-year green convertible notes after the market close on Wednesday with price talk 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.

However, some sources felt the credit spread was tight.

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, there was still plenty of availability, a source said.

The deal was heard to be doing well during bookbuilding with books closing at 2 p.m. ET.

However, some were pushing for the deal to price at the cheap end of talk.

Synthetic trades

BofA Finance’s synthetic cash-settled equity-linked notes saw heavy volume on Wednesday which sources attributed to accounts repositioning.

BofA’s 0.125% cash-settled notes tied to Charter due Sept. 1, 2022 accounted for nearly one fourth of the total reported volume on the tape.

While the 0.125% notes lost their call optionality, they carry an attractive yield.

The 0.125% notes were changing hands on a 99-handle with several $5 million plus trades between 99.25 and 99.3, according to a market source.

The notes, which mature in two and a half months, were carrying a yield of 3.9%.

There was $41 million in reported volume.

The cash-settled notes tied to Charter priced at 103.25 in January 2020.

BofA’s 0.25% cash-settled notes tied to Voya due May 1, 2023 were also active with two $5 million plus trades on the tape.

The 0.25% notes changed hands just shy of 101.375 versus a stock price of $58.28.

Voya’s stock traded to a high of $59.17 and a low of $57.88 before closing the day at $58.67, a decrease of 0.76%.

Expedia declines

Expedia’s 0% convertibles due 2026 (Baa3/BBB-/BBB-) continued to see heavy volume on Wednesday 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.

While there were some odd lot prints on a 90-handle in the late afternoon, 91 seemed to be the true market for the notes, a source said.

There was $18 million in reported volume.

Expedia’s stock traded to a high of $99.24 and a low of $96.72 before closing the day at $97.14, a decrease of 1.66%.

The online travel website’s 0% convertible notes are trading near their all-time lows.

The notes have been under pressure since they were removed from the Refinitiv convertibles indexes about two weeks ago.

Mentioned in this article:

Charter Communications Inc. Nasdaq: CHTR

Expedia Inc. Nasdaq: EXPE

Ormat Technologies Inc. NYSE: ORA

Voya Financial, Inc. NYSE: VOYA

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