JPMorgan synthetic on deck; Ormat convertibles in focus, gain on debut; Avaya jumps

By Abigail W. Adams

Portland, Me., June 23 – The convertibles primary market remained active on Thursday with one large synthetic offering on deck.

JPMorgan Chase Financial Co. LLC plans to price a $500 million offering of five-year cash-settled equity-linked notes tied to Boeing Co. after the market close on Thursday.

While a sizable offering, the deal was talked with a negative yield and did not spark the interest of sources queried.

Meanwhile, the first new paper of the week hit the convertibles secondary space on Thursday on another choppy day for equity markets.

Ormat Technologies Inc. priced an upsized $375 million of five-year green convertible notes after the market close on Wednesday.

The new paper dominated activity in the secondary space. The notes were volatile outright alongside equities but expanded dollar-neutral.

The new paper made its aftermarket debut as the bulls and the bears continued to duke it out in equity markets.

While indexes again wavered between gains and losses in intraday activity, they closed the day strong.

The Dow Jones industrial average closed the day up 194 points, or 0.64%, the S&P 500 index closed up 0.95%, the Nasdaq Composite index closed up 1.62% and the Russell 2000 index closed up 1.27%.

While equities closed Thursday in positive territory, commodities were under pressure with deflation now entering a conversation that has firmly focused on inflation and stagflation, sources said.

There was $522 million on the tape about one hour before the market close with Ormat’s convertible notes accounting for the lion’s share of activity in the space.

Avaya Holdings Corp.’s 2.25% convertibles due June 15, 2023 were active with the notes again jumping after the company secured additional financing to cover the notes at their maturity.

Synthetic

The convertible primary market unleashed its latest synthetic on Thursday.

JPMorgan plans to price a $500 million offering of five-year cash-settled equity-linked notes tied to Boeing after the market close on Thursday with price talk for a fixed coupon of 0.5%, a fixed conversion premium of 50% and an offer price of 105, according to a market source.

The notes carry a negative yield, which makes their valuation difficult, a source said.

And with JPMorgan on the books, there will be little room for outside market makers to get involved.

The deal was most likely the result of a reverse inquiry, a source said.

Ormat notes eyed

Ormat priced an upsized $375 million of five-year green convertible notes after the market close on Wednesday at par with a coupon of 2.5% and an initial conversion premium of 30%.

Pricing came at the midpoint of talk for a coupon of 2.25% to 2.75% and at the cheap end of talk for an initial conversion premium of 30% to 35%, according to a market source.

The deal came as a happy meal with $18 million of net proceeds used to repurchase stock at a purchase price of $69.44 in privately negotiated transactions.

The new paper dominated activity in the space and was making gains on debut.

The 2.5% notes traded as high as 101.375 after the opening bell but came in to trade on a par handle as the session progressed.

The notes were changing hands in the 100.375 to 100.875 context on an outright basis early in the session.

They were seen at par versus a stock price of $69.46 in the late afternoon.

There was $80 million in reported volume.

The majority of trades on the tape were swap trades.

The notes were seen up about 0.5 point dollar-neutral.

“They priced this thing correctly,” a source said.

Ormat’s stock traded to a high of $71.31 and a low of $69.18 before closing the day at $70.60, an increase of 1.71%.

Avaya gains

Avaya’s 2.25% convertibles due June 15, 2023 jumped after the company secured additional financing to prepay the notes at their maturity.

The 2.25% notes gained 5 points to trade up to a 95-handle.

The notes were changing hands at 95.25 in the late afternoon with the yield now 7.43%.

There was $16 million in reported volume.

The long-busted convertible notes jumped as the company secured additional financing to prepay the notes at their maturity.

In a private placement, Avaya sold $150 million 8% exchangeable notes due 2027 with proceeds to be used to prefund the payment of the 2.25% convertible notes.

The financing is the second transaction Avaya has entered into with proceeds to be used to fund the payment of the 2.25% convertible notes.

Avaya plans to price a downsized $350 million first-lien term loan due December 2027 with proceeds to also be used for the payment of the 2.25% convertible notes.

The notes tanked in late May, trading as low as 77, as investors worried whether the company would be able to pay the notes at their maturity.

Mentioned in this article:

Avaya Holdings Corp. NYSE: AVYA

Boeing Co. NYSE: BA

Ormat Technologies Inc. NYSE: ORA

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