New NextEra edges up dollar-neutral; older NextEra slips; primary yields about $2 billion

By Rebecca Melvin

New York, Sept. 11 – NextEra Energy Inc.’s newly priced mandatory convertibles were flat to lower on an outright basis but edged up on a dollar-neutral basis early Friday after the Juno Beach, Fla.-based utility priced the overnight $700 million of units at the pricing that was talked.

The NextEra 6.371% equity units were seen at 49.75 bid, 50 offered at mid-afternoon with the shares slightly lower at about $95.00, one source said.

The issue was “performing like they are supposed to be – trading above the issue price,” a second source said.

NextEra’s older 5.799% mandatory convertible due 2016, of which $500 million priced in September 2013, traded down to 50 bid, 50.5 offered, which was down from about 53 previously, a source said.

The new NextEra deal capped a busy week in the convertible primary market in which about $2 billion in four deals priced. The deals were moderately attractive in terms of pricing and traded modestly, or flat to in line with their underlying shares.

The moderate performance in terms of trading in the aftermarket wasn’t an indicator of demand, however, a New York-based trader said. It was more a function of sector, structure and size.

“There is still plenty of appetite for new paper, the trader said. “Bids hit yesterday haven’t affected the market at all; there is further demand out there for more paper.”

Investors are especially interested in diversifying their portfolios so deals in the transportation or defense sectors, for example, would be snapped up, the trader said.

Three other U.S. convertibles deals priced this week.

Dycom Industries Inc. sold $420 million of 0.75% convertibles, which edged up on swap after the Palm Beach Gardens, Fla.-based provider of specialty contracting services priced the six-year senior notes at the midpoint of talked terms.

BroadSoft Inc. priced $175 million of 1% convertibles that slipped on an outright basis after the Gaithersburg, Md.-based provider of internet software and services priced at the midpoint of talk.

And Stericycle Inc. sold $700 million of 5.25% mandatory convertible preferred shares that the Lake Forest, Ill.-based provider of medical waste services priced at mixed terms.

NextEra edges up on swap

NextEra’s 6.371% mandatories were quoted at 49.75 bid, 50 offered at mid-afternoon Friday versus an underlying share price of $95.00.

“We expected the mandatory would trade up, which it did,” a syndicate source said.

The underwriters, including Barclays, Mizuho Securities USA Inc. and Wells Fargo Securities LLC, are optimistic that the new NextEra paper will continue to do well because two older issues recently came due, leaving only one other convertible issue outstanding besides the new deal.

“Comparatively to other securities, it’s a good value,” a syndicate source said. “A lot of capacity has opened.”

Allocations for the $700 million of mandatories went to a mix of outright and hedged players. Not as many outright players participated as is typical in this type of deal due to the fact that it was an overnight offering and difficult for outrights.

With the stock down a little bit, the new paper looked slightly better. But shares clawed back from a lower start to end up 11 cents at $95.46.

The units have a distribution rate of 6.371% and a premium of 20%, which was the same as the talked pricing at deal launch.

The equity units consist of a contract to purchase NextEra Energy common stock and a 5% beneficial ownership interest in a NextEra Energy Capital Holdings Inc. debenture due Sept. 1, 2020. The debentures will be guaranteed by NextEra Energy Holdings’ parent company, NextEra Energy Inc.

Proceeds will be added to the general funds of NextEra Energy Capital Holdings for use in energy and power project investments, including renewable power projects.

The purchase contract obligates holders to purchase from NextEra a certain number of shares no later than Sept. 1, 2018.

Based in Juno Beach, Fla., NextEra is power generation and transmission company.

New deals traded in line

The week’s new deals “came moderately attractively and traded in line. There was nothing too substantial,” a New York-based trader said.

He said that there was plenty of appetite left in the market, however, with market players still awaiting that chunky, $500 million-plus bond from a solid sector.

Many convertible hedge players prefer bond structures to more equity-like structures, and bigger deal size is appealing because of better liquidity.

Of the week’s deals, “BroadSoft was an exchange deal, Dycom was OK and not a lot of outright guys play mandatories to begin with,” the trader said.

But even with the volatile broader markets and a weaker credit market, the convertibles market “is still open,” the trader said.

Sectors into which convertibles players would like to diversify in terms of their portfolios are areas like defense and transportation, but also “anything that is not energy, health care or technology,” the trader said.

The new Dycom 0.75% convertible traded 100.6 on Friday, according to Trace data, and the new BroadSoft 1% convertible traded at 99.5. Both prices were little changed compared to Thursday.

In the broader markets, equities ended the week solidly higher. The Dow Jones industrial average gained 102.69 points, or 0.6%, to 16,433.09, the S&P 500 stock index gained 8.76 points, or 0.5%, to 1,961.05, and the Nasdaq Composite index added 26.09 points, or 0.5% to 4,822.34.

Mentioned in this article:

BroadSoft Inc. Nasdaq: BSFT

Dycom Industries Inc. NYSE: DY

NextEra Energy Inc. NYSE: NEE

Stericycle Inc. Nasdaq: SRCL

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