Algonquin Power units flat outright, contract dollar-neutral; large seller in market

By Abigail W. Adams

Portland, Me., June 18 – The last and largest deal of the week hit the convertibles secondary space on Friday.

Algonquin Power & Utilities Corp. priced an upsized $1 billion of three-year par-of-$50 equity units after the market close on Thursday.

The units were “not a winner” in the aftermarket, a source said. However, they were not a disaster either with the notes flat outright and contracted slightly on swap.

Meanwhile, it was a relatively quiet day for convertible bonds trading with $86 million on the tape about one hour into the session and $444 million in reported volume in the late afternoon.

Vroom Inc.’s 0.75% convertible notes due 2026 and Cracker Barrel Old Country Store Inc.’s 0.625% convertible notes due 2026 remained active but followed different trajectories.

Vroom’s notes improved on an outright and dollar-neutral basis; however, Cracker Barrel’s convertible notes sank further below par.

While recent issues remained active, the majority of volume in the space was driven by an outright seller, a source said.

Pioneer Natural Resources Co.’s 0.25% convertible notes due 2025; DexCom Inc.’s 0.25% convertible notes due 2025; and Southwest Airlines Co.’s 1.25% convertible notes due 2025 were among the issues that the outright seller offloaded.

While there was a large seller in the market, the sale of the notes was orderly with most of the trades in line with their current secondary market valuation.

Algonquin flat

Algonquin Power priced an upsized $1 billion of three-year par-of-$50 equity units after the market close on Thursday at the midpoint of talk with a yield of 7.75% and a threshold appreciation premium of 20%.

Price talk was for a yield of 7.375% to 7.875% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

The greenshoe was also upsized to $150 million.

The initial size of the offering was $900 million with a greenshoe of $135 million.

The equity units fell flat on an outright basis and were contracted dollar-neutral.

They were seen changing hands at $49.75 versus a stock price of $15 early in the session.

They remained largely wrapped around their issue price of $50 heading into the afternoon.

While flat on an outright basis, they were contracted 0.25 point dollar-neutral, sources said.

“Not terrible but not a winner,” a source said of their performance.

Algonquin’s stock traded to a low of $14.82 and a high of $15.21 before closing the day at $15.07, an increase of 0.74%.

Day three

The new deals to price over the course of the week remained active their third day in the secondary space although they continued to follow different trajectories.

Vroom’s 0.75% convertible notes due 2026 improved on an outright and dollar-neutral basis on Friday.

After trading off slightly on an outright basis on Thursday, the 0.75% notes traded back up to 102. They improved about 0.125 point on swap, a source said.

There was more than $13 million on the tape in the late afternoon.

Vroom’s stock traded to a high of $41.23 and a low of $40.16 before closing the day at $41.08, an increase of 0.76%.

However, Cracker Barrel’s 0.625% convertible notes due 2026 slipped further below par. The notes were down another 0.75 point outright with stock off a little more than 1%.

The 0.625% notes were changing hands at 99 versus an equity price of $145 in the late afternoon, according to a market source.

Cracker Barrel’s stock traded to a high of $145.88 and a low of $143.40 before closing the day at $144, a decrease of 1.61%.

Outright seller

The majority of trading activity in convertible bonds on Friday was driven by a large outright seller in the market, a source said.

Pioneer Natural Resources’ 0.25% convertible notes due 2025, DexCom’s 0.25% convertible notes due 2025 and Southwest Airlines’ 1.25% convertible notes due 2025 were among the names offloaded.

Despite the large quantity of notes for sale, buyers were plentiful and the notes traded tight to their current market values.

The activity was most likely the result of a rebalancing of a portfolio as the end of the second-quarter approaches, the source said.

Pioneer’s 0.25% notes were changing hands at 154.75 versus a stock price of $154.77 early in the session, according to a market source.

There was more than $8 million in reported volume.

Pioneer’s stock closed Friday at $154.84, a decrease of 1.58%.

Southwest Airlines’ 1.25% convertible notes due 2025 were changing hands at 156.15 versus a stock price of $55.60 in the late afternoon.

The notes saw the highest volume of convertible bonds with $32 million in reported volume.

Southwest Airlines’ stock closed Friday at $55.19, a decrease of 0.72%.

DexCom’s 0.25% convertible notes due 2025 were changing hands at 104.375 versus a stock price of $414.49 in the late afternoon.

There was about $13 million in reported volume.

DexCom’s stock closed Friday at $418.29, an increase of 1.42%.

Mentioned in this article:

Algonquin Power & Utilities Corp. NYSE: AQN

Cracker Barrel Old Country Store Inc. Nasdaq: CBRL

DexCom Inc. Nasdaq: DXCM

Pioneer Natural Resources Co. NYSE: PXD

Southwest Airlines Co. NYSE: LUV

Vroom Inc. Nasdaq: VRM

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