Morning Commentary: Spirit Airlines eyed; Snap hits the aftermarket, trades up on debut

By Abigail W. Adams

Portland, Me., April 28 – New paper was in focus on Wednesday with the convertibles primary market returning to action after a more than one-week hiatus.

Spirit Airlines Inc. plans to price $440 million of five-year convertible notes after the market close on Wednesday.

The refinancing deal looked cheap based on underwriters’ assumptions and was optically attractive for the market’s current pricing, a source said.

Meanwhile, the first new paper in more than one week hit the secondary space.

Snap Inc. priced $1 billion of six-year convertible notes after the market close on Tuesday.

While many thought the days of 0% coupons that priced at par were a thing of the past, the social media darling was able to secure the attractive terms.

The new paper dominated activity in the secondary space and was trading up on debut.

Spirit Airlines eyed

Spirit Airlines plans to price $440 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 1% to 1.5% and an initial conversion premium of 37.5% to 42.5%, according to a market source.

The deal was heard to be in the market with assumptions of 425 bps over Libor and a 42% vol., according to a market source.

Using those assumptions, the deal looked 2.56 points cheap at the midpoint of talk.

The deal had optically attractive terms with a decent coupon given the current pricing in the market.

However, proceeds from the new offering will be used to repurchase for cash a portion of the Miramar, Fla.-based airline’s 4.75% convertible notes due 2025.

Spirit priced the 4.75% convertible notes in May 2020 as part of a wave of rescue financing as companies scrambled to raise liquidity at the height of the pandemic-induced economic shutdown.

Snap trades on debut

Snap priced $1 billion of six-year convertible notes after the market close on Tuesday at par with a coupon of 0% and an initial conversion premium of 47.5%, according to a company press release.

Pricing came at the rich end of talk for a coupon of 0% to 0.5% and the midpoint of talk for an initial conversion premium of 45% to 50%, according to a market source.

While pricing in the convertibles primary market was beginning to change with No-Nos, or 0% coupons that priced at par, more difficult to come by, the camera and social media company was able to secure the attractive terms.

The new paper was trading up on an outright and dollar-neutral basis on debut.

The notes were marked at 100.375 bid, 100.875 offered versus a stock price of $59.65.

Snap’s stock was changing hands at $60.11, a decrease of 0.63%, shortly before 11 a.m. ET.

Snap is a serial issuer of convertible notes.

Concurrently with the new offering, the company entered into privately negotiated exchange agreements with holders of its 0.75% convertible notes due 2026 and 0.25% convertible notes due 2025 and will exchange $840 million in principal amount of the notes for 38.4 million shares.

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