Morning Commentary: T-Mobile eyed; American Airlines, Zscaler, PagerDuty, Livent price

By Abigail W. Adams

Portland, Me., June 23 – The convertibles primary market resumed its record setting pace with a $3.2 billion offering set to price after the market close on Tuesday, a $1.5 billion offering on deck for after the market close on Thursday and $2.475 billion over four deals pricing late Monday.

PG&E Corp. plans to price $1.5 billion in $100-par three-year equity units after the market close on Thursday.

Price talk is for a dividend of 5.5% to 6% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

The units will consist of a prepaid forward stock purchase contract and a zero-coupon U.S. treasury strip.

The 2020 Cash Mandatory Exchangeable Trust plans to price up to $3.2 billion three-year cash-settled mandatory securities tied to T-Mobile US, Inc. after the market close on Tuesday.

The deal is part of SoftBank Group Corp.’s effort to monetize its holding in T-Mobile and is structured similarly to SoftBank’s previous mandatory exchangeable linked to Alibaba Group Holding Ltd.

The structure is popular among issuers and enables them to tap into beneficial rates, a source said.

As market players eyed the large mandatory offerings in the pipeline, new paper from Zscaler Inc., American Airlines Group Inc., PagerDuty Inc. and Livent Corp. made their aftermarket debut.

The new paper had mixed performances in the secondary space.

T-Mobile eyed

The 2020 Cash Mandatory Exchangeable Trust plans to price up to $3.2 billion par of $1,000 three-year cash-settled mandatory securities tied to T-Mobile after the market close on Tuesday with price talk for a dividend of 5.25% to 5.75% and a threshold appreciation premium of 17.5% to 22.5%.

The deal was heard to be marketed with a credit spread of Libor flat and a 27% vol. to 30% vol. skew, a source said.

Using those assumptions, the deal looked about 6 points cheap at the midpoint of talk.

Proceeds will be used, in part, to purchase U.S. Treasury securities, which will be held in escrow to fund the quarterly dividend payments of the mandatory securities.

With the coupon stream collateralized, there is no credit exposure to the company, a source said.

Proceeds from the exchangeable trust offering will go to SoftBank with the securities part of SoftBank’s efforts to monetize a portion of its stake in T-Mobile.

The offering is a Rule 144A deal, which is rare for mandatories, a market source said.

However, the deal was structured similarly to SoftBank’s mandatories tied to Alibaba.

“It’s an efficient structure and it enables companies to get a better rate,” a market source said.

The deal was expected to do well with orders pouring in before the investor call had even taken place, a source said.

Zscaler expands

Zscaler priced $1 billion of five-year convertible notes after the market close on Monday at par at the rich end of talk with a coupon of 0.125% and an initial conversion premium of 37.5%.

Price talk was for a coupon of 0.125% to 0.625% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

The 0.125% convertible notes were making large gains on an outright and dollar-neutral basis early in the session.

The notes were changing hands at 102.25 early Tuesday, according to a market source.

They were expanded more than 2 points dollar-neutral.

The notes were active with $71 million in reported volume about one hour into the session.

Zscaler stock was changing hands at $109.49, a decrease of 0.16%, shortly before 11 a.m. ET.

American Airlines contracts

American Airlines priced an upsized $1 billion of five-year convertible notes after the market close on Monday at par with a coupon of 6.5% and an initial conversion premium of 20%.

Pricing came at the cheap end of talk for a coupon of 6% to 6.5% and at the midpoint of talk for an initial conversion premium of 17.5% to 22.5%, according to a market source.

Concurrently with the convertible notes, the company priced an upsized secondary common stock offering of $1 billion, or74.1 million shares, at $13.50 per share.

American Airlines’ 6.5% notes dominated activity in the secondary space. However, they were contracting on debut.

The notes traded down to 99.25 early Tuesday, a source said.

They were contracted about 2.5 points dollar-neutral.

The bonds saw more than $147 million in reported volume.

American Airlines stock was changing hands at $13.87, a decrease of 7.04%, shortly before 11 a.m. ET.

PagerDuty trades up

PagerDuty sold $250 million of five-year convertible notes after the market close on Monday at par with a coupon of 1.25% and an initial conversion premium of 30%.

Pricing came at the rich end of talk for a coupon of 1.25% to 1.75% and at the midpoint of talk for an initial conversion premium of 27.5% to 32.5%, according to a market source.

The notes were putting in a strong performance in the secondary space.

They traded up to 103 with stock down about 1% early in the session, according to a market source.

PagerDuty stock was changing hands at $30.60, a decrease of 0.75%, shortly before 11 a.m. ET.

Livent prices cheap

Livent priced $225 million of five-year convertible notes after the market close on Monday at par at the cheap end of talk with a coupon of 4.125% and an initial conversion premium of 35%.

Price talk was for a coupon of 3.625% to 4.125% and an initial conversion premium of 35% to 40%.

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