Morning Commentary: PPL, Liberty exchangeables price; PPL skyrockets, Liberty flat

By Abigail W. Adams

Portland, Me., Feb. 22 – It was an active morning in the convertibles secondary space as $2 billion in new supply made its aftermarket debut.

PPL Capital Funding Inc., a subsidiary of PPL Corp., priced $900 million of five-year exchangeable notes (Baa1/BBB+) and Liberty Broadband Corp. priced $1.1 billion of senior debentures due 2053 exchangeable for Charter Communications Inc. class A common stock after the market close on Tuesday.

The new paper hit the secondary space on a volatile day for equity markets with indexes wavering between gains and losses as the market awaits the 2 p.m. ET release of the Federal Reserve minute notes.

The Dow Jones industrial average was up 30 points, or 0.09%, the S&P 500 index was up 0.06%, the Nasdaq Composite index was up 0.21% and the Russell 2000 index was up 0.40% shortly before 11 a.m. ET.

The new paper had mixed aftermarket performances with PPL jumping on an outright and dollar-neutral basis and Liberty falling flat on debut.

PPL skyrockets

PPL priced $900 million of five-year exchangeable notes after the market close on Tuesday at par with a coupon of 2.875% and an initial exchange premium of 22.5%.

Pricing came at the rich end of tightened talk for a coupon of 2.875% to 3.125% and in line with talk for an initial exchange premium of 22.5%, according to a market source.

Initial price talk was for a coupon of 3% to 3.5% and an initial exchange premium of 20% to 25%.

The investment-grade-rated notes played to heavy demand during book building with the offering more than 4x oversubscribed, a source said.

The strong demand followed the new paper into the secondary space with the notes jumping on an outright and dollar-neutral basis.

The notes were changing hands at 102.125 versus a stock price of $28.07 early in the session, according to a market source.

PPL’s stock was seen at $28.04, an increase of 0.83%, shortly before 11 a.m. ET.

Liberty exchangeables flat

Liberty Broadband priced $1.1 billion of senior debentures due 2053 exchangeable for Charter class A common stock after the market close on Tuesday at par with a coupon of 3.125% and an initial exchange premium of 40%.

Pricing came at the cheap end of talk for a coupon of 2.625% to 3.125% and at the midpoint of talk for an initial exchange premium of 37.5% to 42.5%.

The deal played to strong demand during book building.

However, the notes fell flat in the aftermarket.

They were trading at 100.25 versus a stock price of $380.67 early in the session, according to a market source.

Demand for the new paper was largely driven by holders of the outstanding notes the company is tendering for, a source said.

Proceeds from the offering will be used to repurchase all the outstanding Grizzly Merger Sub 1 LLC 1.75% exchangeable senior debentures due 2046, Liberty Broadband’s 2.75% convertible notes due 2050 and 1.25% convertible notes due 2050 and for general corporate purposes.

The company is tendering for the notes with a par purchase price. The tender is expected to settle on Feb. 28.

The tender “was the kiss more so than the new deal,” a source said.

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