Morning Commentary: Clarios mandatories on tap; Fortive convertible notes active early

By Abigail W. Adams

Portland, Me., July 20 – After a three-week hiatus, the convertibles primary market returned to action and launched a new deal on Tuesday.

Clarios International Inc. plans to price $500 million of three-year $50-par mandatory convertible preferred stock on July 29 with price talk for a dividend of 5.75% to 6.25% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

The lead time on the deal is over a week due to the concurrent pricing of the company’s initial public offering of stock.

The Milwaukee-based car battery manufacturer is pricing its IPO of about $1.2 billion or 62 million shares on July 29.

There is also a concurrent private placement of $250 million in common stock.

The mandatory offering was most likely the result of limitations placed on how much the company can raise through its IPO, a source said.

By pricing a concurrent offering of mandatory convertible preferred shares, the company can sidestep Securities and Exchange Commission regulations that limit the amount that can be raised through an IPO and prevent a devaluation of shares that would result from too many shares pricing at once.

“This way they’re able to get all their financing done at once,” a source said.

Meanwhile, it was a slow start to the day in the convertibles secondary space as equity markets rebounded from Monday’s bloodletting.

The Dow Jones industrial average was up 539 points, or 1.59%, the S&P 500 index was up 1.31%, the Nasdaq Composite was up 1.03% and the Russell 2000 was up 2%.

There was $73 million of secondary convertibles trading on the tape a little more than one hour into the session.

However, few names saw concentrated trading activity.

Fortive Corp.’s 0.875% convertible notes due Feb. 15, 2022 were the most actively traded notes in the secondary space.

The 0.875% notes were changing hands at 100.25 versus a stock price of $69.72 early in the session.

There was more than $11 million on the tape.

Fortive’s stock was changing hands at $70.02, a decrease of 2.43% shortly before 11 a.m. ET.

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