Morning Commentary: Peabody Energy convertibles offering eyed; Snap notes below par

By Abigail W. Adams

Portland, Me., Feb. 24 – The convertibles primary market returned to action after a more than one-week hiatus with one new offering on deck.

Peabody Energy Corp. plans to price $250 million of six-year convertible notes after the market close on Thursday with price talk for a coupon of 3% to 3.5% and an initial conversion premium of 30% to 35%, according to a market source.

The deal from the coal producer was heard to be in the market with assumptions of 850 basis points over Libor and a 45% vol.

Using those assumptions, the deal modeled 2.85 points cheap at the midpoint of talk, a source said.

The deal came as a surprise as equities remained volatile following Russia’s full-scale military assault on the Ukraine.

While equities remained in negative territory shortly before 11 a.m. ET, they pared their losses from the open with bargain shoppers buoying the market.

The Dow Jones industrial average was down 585 points, or 1.77%, the S&P 500 index was down 1.01% and the Russell 2000 index was down 1.14%.

However, the Nasdaq Composite outperformed and was down 0.17% shortly before 11 a.m. ET after opening down almost 3%.

There was $68 million in reported volume about one hour into the session.

Snap Inc.’s 0.125% convertible notes due 2028 were in focus with the notes dropping below par for the first time since hitting the secondary space on Feb. 9.

The notes were down about 2 points outright with stock deep in the red early in the session.

The 0.125% notes were changing hands at 98.625 versus a stock price of $36.54 about one hour into the session.

There was $7 million in reported volume.

While Snap’s stock opened down more than 5%, it shot up to positive territory as the session progressed.

Snap’s stock was $37.75, an increase of 2.11%, shortly before 11 a.m. ET.

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