DISH deal comes upsized; NextEra sells equity units at a discount; Cobalt bonds rebound

By Stephanie N. Rotondo

Seattle, Aug. 3 – Two new convertible issues were priced early Wednesday, giving investors something to focus on.

DISH Network Corp. brought $2.5 billion of 3.375% convertible notes due 2026.

The notes carry a 32.5% conversion premium, which was in line with 30% to 35% talk.

A trader said the deal – which came upsized from $2 billion– was “all the volume.”

“That’s what happens when you get a new issue of this size; it just dominates the action,” he said.

The trader quoted the issue with a 103 handle post-pricing. Toward the close, the convertibles were pegged at 103.5 bid, 103.75 offered.

The stock, which had declined on Tuesday after the deal was first announced, was also heading for higher ground.

The stock moved up $2.13, or 4.33%, to $51.32.

Deutsche Bank Securities Inc. ran the books.

The notes are convertible under certain circumstances and during certain periods into class A common stock at an initial conversion rate of 15.3429 shares per each $1,000 of notes. That equates to an initial conversion price of $65.18, a 32.5% conversion premium over the $49.19 closing share price on Aug. 2.

Initial price talk was 3.125% to 3.625%, a market source reported. The initial conversion premium was expected to be 30% to 35%.

NextEra Energy Inc. also came with a deal, pricing $1.5 billion of 6.123% mandatory convertible equity units.

The units were priced at $48.875 apiece but have a par value of $50.00. A trader said that upon pricing, the units moved back up to the par level.

Near the bell, the issue was quoted at 50.125 bid, 50.25 offered.

The equity was also ticking up, adding 46 cents to close at $128.09.

Goldman Sachs & Co., Credit Suisse Securities (USA) LLC and Mizuho Securities were the bookrunners.

Each unit will 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, 2021. The debentures will be guaranteed by the parent company.

Each stock contract is based on a per share price range of $127.63 to $159.54. At the higher end, the price represents a 25% premium over Tuesday’s closing share price.

Looking ahead, Rayonier Advanced Materials Inc. added a deal to the calendar late in the day.

The Jacksonville, Fla.-based cellulose producer said it was selling $125 million of series A mandatory convertible preferred stock.

BofA Merrill Lynch, J.P. Morgan Securities LLC and Wells Fargo Securities LLC are the joint bookrunners. DNB Markets, PNC Capital Markets LLC, TD Securities and U.S. Bancorp are co-managers.

The preferreds automatically convert into common stock on the third business day immediately following the last trading day of the final averaging period, which ends Aug. 15, 2019.

At any time prior to that date, holders can convert their preferreds into common stock.

The company plans to use the proceeds for general corporate purposes.

Cobalt rebounds

Away from the new issues, a trader said Cobalt International Energy Inc.’s 2.625% convertible notes due 2019 were “still trading” but were looking to regain lost territory.

The bonds had fallen on Tuesday in response to a flurry of bad news out about the oil and gas company. Come Wednesday, paper was up about 1.5 points, the trader said, trading around “38 and change.”

“Prints were all over the place yesterday,” he said. Wednesday’s gains were “not unexpected, they went down a lot.”

By the end of the day, the bonds had risen to 38.625, up from 36 previously.

The stock underlying the debt was also making a comeback, rising 6.1 cents, or 6.23%, to $1.04.

On Tuesday, Cobalt reported a wider net loss of $205.55 million, or 50 cents per share. That compared to a loss of $66.81 million, or 16 cents per share, the year before.

As of June 30, long-term debt was $2.03 billion, while cash and equivalents came to $833.8 million.

However, its cash on hand is likely to be reduced by $250 million, the amount received from Sonangol, Angola’s state oil company, for a planned purchase of Cobalt’s 40% stake in offshore oil blocks in the region. Cobalt said Tuesday that the $1.75 billion sale – first announced in August 2015 – was unlikely to move forward. This adds to Cobalt’s troubles, as it is under investigation by the U.S. Department of Justice for its operations in the African state.

The bad news did not stop there, as Cobalt also announced that its Goodfellow #1 exploration well in the Gulf of Mexico – a project started in March that had everyone’s hopes high – was dry.

The company noted that its wider loss was due in part to a write-off taken because of the dry well.

One final bit of disappointing news was that the company has reduced its workforce by over 60% in the last few months.

Mentioned in this article:

Cobalt International Energy Inc. NYSE: CIE

DISH Network Corp. Nasdaq: DISH

NextEra Energy Inc. NYSE: NEE

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