Morning Commentary: TPI, Encore convertible notes offerings eyed; Alliant weak on debut

By Abigail W. Adams

Portland, Me., Feb. 28 – The convertibles primary market continued to churn out new offerings with two deals slated to price after the market close on Tuesday after one deal clearing the market post-close on Monday.

TPI Composites Inc. plans to price $100 million of five-year convertible notes and Encore Capital Group Inc. plans to price $175 million of six-year convertible notes after the market close on Tuesday.

The deals looked cheap based on underwriters’ assumptions and were expected to be play to solid demand from hedge accounts after the slate of investment-grade issuance.

As market players eyed the new deals in the works, Alliant Energy Corp.’s three-year convertible notes (BBB+) made their aftermarket debut.

The new paper saw a weak start in the secondary space with the notes dropping below par out of the gate.

TPI looks cheap

TPI Composites plans to price $100 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 5% to 5.5% and an initial conversion premium of 27.5% to 32.5%

The deal was heard to be in the market with assumptions of a 1,000 basis points credit spread and a 45% vol., a source said.

Using those assumptions, the deal looked about 3.7 points cheap with an off the top borrow rate, a source said.

The borrow rate has historically been tough, which may affect demand and drive pricing toward the cheap end of talk, another source said.

However, with the large coupon, the small offering is expected to do well.

Encore’s refinancing

Encore Capital Group plans to sell $175 million of six-year convertible notes after the market close on Tuesday with price talk for a coupon of 3.75% to 4.25% and an initial conversion premium of 25% to 30%.

The deal was heard to be in the market with assumptions of a 625 bps credit spread and a 30% vol.

Using those assumptions, the deal looked about 2.5 points cheap at the midpoint of talk.

Encore is a well-known name in the convertible universe.

The deal is expected to play to strong demand with the offering coming as a refinancing and meeting a lot of accounts’ portfolio requirements, a source said.

Proceeds will be used to repurchase a portion of Encore Capital Europe Finance Ltd.’s 4.5% exchangeable senior notes due 2023 in privately negotiated transactions.

Alliant weak

Alliant Energy priced $500 million of three-year convertible notes (BBB+) after the market close on Monday at par at the cheap end of talk with a coupon of 3.875% and an initial conversion premium of 25%.

Price talk was for a coupon of 3.375% to 3.875% and an initial conversion premium of 25% to 30%.

The deal was the third investment-grade rated paper since last Tuesday, and saturation continued to drag down their aftermarket performance.

The new 3.875% notes were changing hands in the 99.75 to par context early in the session with most prints below par, a source said.

Alliant’s stock was trading at $51.16, a decrease of 0.58%, shortly before 11 a.m. ET.

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