Hannon Armstrong in focus; Southwest active; Twitter comes in

By Abigail W. Adams

Portland, Me., April 8 – It was a relatively quiet day in the convertibles secondary space on Friday with the exception of one name – Hannon Armstrong Sustainable Infrastructure Capital Inc.

Hannon Armstrong priced $200 million of 0% green exchangeable notes due 2025 after the market close on Thursday.

The new paper dominated activity in the secondary space, accounting for $34 million of the $433 million in reported volume about one hour before the market close.

The new paper was seen as flat to slightly expanded in high-volume activity.

Meanwhile, the secondary space remained quiet on another volatile day for equities with indexes wavering between gains and losses before closing the day mixed.

The Dow Jones industrial average closed Friday up 137.55, points or 0.40%, the S&P 500 index closed down 0.27%, the Nasdaq Composite closed down 1.34% and the Russell 2000 index closed down 0.76%.

While volume was light, the market felt heavy, a source said.

Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB) saw heavy volume during Friday’s session although with little movement in price.

Twitter Inc.’s convertible notes were giving back some of their games as stock came in after surging following revelation of Tesla Inc. CEO’s Elon Musk’s ownership interest in the company and addition to the board.

Hannon flat

Hannon Armstrong priced $200 million of 0% green exchangeable notes due 2025 with a redemption price of 110.15 for an accretion rate of 3.25% and an initial conversion premium of 32.5%.

Pricing came in line with widened talk for a redemption price at maturity of 110.15 for an accretion rate of 3.25% and at the rich end of talk for an initial conversion premium of 30% to 32.5%, according to a market source.

Initial price talk was for a redemption price at maturity of 107.1 to 108.7, for a yield of 2.25% to 2.75% and an initial conversion premium of 35% to 40%.

The new paper dominated activity in the secondary space.

The notes traded in a range of 99.875 to 100.5 early in the session.

They were marked at 100 bid, 100.375 offered versus a stock price of $42.67 shortly before 11 a.m. ET.

The notes improved on an outright basis as the session progressed and were seen at 100.25 bid, 100.75 offered versus a stock price of $43.25 in the late afternoon.

The notes were seen as flat to expanded about 0.25 to 0.5 point on swap, sources said.

The theoretical delta on the notes was 54%. However, some market players had them on a 40% hedge.

Hannon Armstrong stock traded to a high of $43.75 and a low of $41.62 before closing the day at $42.81, an increase of 0.33%.

The notes struggled during bookbuilding, in part due to the sizeable yield on the common stock and in part due to the unique structure of the notes.

However, there was a great deal of interest in the offering at the widened price talk.

Hannon Armstrong is a specialty real estate investment trust focused on climate solutions.

While REIT paper is typically low vol., Hannon Armstrong’s stock has a much higher vol. than a traditional REIT and the offering attracted interest from hedge players, sources said.

Southwest active

Southwest Airlines’ 1.25% convertibles due 2025 saw heavy volume on an otherwise quiet day in the convertible secondary space although with little movement in price.

The 1.25% notes were changing hands just shy of 128 in the late afternoon.

There was about $15 million in reported volume.

Southwest stock traded to a high of $42.43 and a low of $41.18 before closing the day at $41.25, a decrease of 2.69%.

Twitter comes in

Twitter’s convertible notes were giving back some of their gains as the company’s stock came in from a meteoric rise earlier in the week.

Twitter’s 0.25% convertible notes due 2024 were down about 1.25 points outright with stock off more than 3.5%.

They were changing hands at 109.75 heading into the market close.

The 0% convertible notes due 2026 were also down about 1.25 points outright to trade at 86.625 heading into the close.

Twitter stock traded to a high of $48.44 and a low of $45.83 before closing the day at $46.27, a decrease of 3.66%.

Twitter stock has given back much of its “post-Musk pop,” a source said.

Twitter stock surged as high as $54 in intraweek activity following news Musk would be joining the board of directors after revealing a 9.2% stake in the company.

The 0.25% notes traded as high as 115 and the 0% convertible notes traded as high as 88 on the news.

The 0.25% notes closed last Friday on a 102-handle and the 0% convertible notes closed last Friday at 84.75.

While the convertible notes and stock were unable to hold onto their gains, they were still improved week over week.

Mentioned in this article:

Hannon Armstrong Sustainable Infrastructure Capital Inc. NYSE: HASI

Southwest Airlines Co. NYSE: LUV

Twitter Inc. NYSE: TWTR

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