Morning Commentary: Envista notes on tap; Southwest Airlines, Pioneer Natural expand

By Abigail W. Adams

Portland, Me., May 18 – While the convertibles primary market slowed its pace on Monday, the overnight deals continued with one offering on deck.

Envista Holdings Corp. plans to price $400 million of five-year convertible notes after the market close on Monday.

While the deal looked cheap based on underwriters’ assumptions, some sources felt those assumptions were aggressive.

New deal activity is expected to slow down in the coming weeks after the record setting pace seen over the past three weeks.

Outside of the rescue financing that brought several issuers to the market, many of the deals that priced in the surge of activity had been in the pipeline but placed on hold as the economic shutdown caused by the coronavirus sidelined deal-making, sources said.

Meanwhile, the secondary space launched the week on strong footing as equities surged following positive early results from a coronavirus vaccine in development and comments by Federal Reserve chairman Jerome Powell about continued economic support.

Southwest Airlines Co.’s 1.25% convertible notes due 2025 continued to see high-volume activity with the notes rebounding on an outright and dollar-neutral basis.

Pioneer Natural Resources Co.’s 0.25% convertible notes due 2025 also continued to gain in early activity as crude oil futures rose above $30 a barrel in early trading.

NCL Corp. Ltd.’s 6% exchangeable notes due 2024 for Norwegian Cruise Line Holdings Ltd. jumped outright as stock skyrocketed early Monday.

Envista eyed

Envista plans to price $400 million of five-year convertible notes after the market close on Monday with price talk for a coupon of 1.875% to 2.375% and an initial conversion premium of 30% to 35%, according to a market source.

The deal was heard to be in the market with assumptions of 700 basis points over Libor and a 40% vol., according to a market source.

Using those assumptions, the deal looked about 3.25 points cheap at the midpoint of talk, a source said.

However, some sources felt those assumptions were aggressive.

Prior to the market pricing in the economic impact of the coronavirus, Envista’s stock “didn’t move,” a source said.

The holding company for dental products and services saw its EBITDA take an enormous hit in the past year, the source said.

“It’ll be interesting to see how this one goes,” a source said. “If people are bullish, it should do OK.”

Southwest rebounds

Southwest Airlines’ 1.25% convertible notes due 2025 were on the rebound in high-volume activity on Monday.

The notes jumped more than 5 points outright to trade up to 97.

They expanded about 1.5 points dollar-neutral, a source said.

Southwest Airlines stock was changing hands at $26.15, an increase of 9.55%, shortly before 11 a.m. ET.

Pioneer expands

Pioneer Natural Resources’ 0.25% convertible notes due 2025 also continued to rebound in early activity as crude oil futures rose above $30 a barrel in early trading.

The 0.25% convertible notes gained 4 points outright to trade up to a 104-handle with stock up more than 7% early Monday.

They also gained about 1.5 points dollar-neutral.

Pioneer stock was traded up to $88.50, an increase of 6.81%, shortly before 11 a.m. ET.

Norwegian Cruise Line up

NCL’s 6% exchangeable notes due 2024 jumped on an outright basis in early trading as stock skyrocketed early Monday.

After languishing below par for the past week, the 6% notes gained more than 6 points outright to trade up to 106.375.

However, they were moving largely inline on a dollar-neutral basis, a source said.

Norwegian Cruise stock traded up to $12.32, an increase of 12.82%, shortly before 11 a.m. ET.

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