Morning Commentary: BofA synthetic tied to Charter on tap; Elanco equity units eyed

By Abigail W. Adams

Portland, Me., Jan. 22 – After a week-long hiatus, the convertibles primary market returned to action with two deals set to price after the market close on Wednesday.

BofA Finance LLC plans to price $500 million 2.6-year cash-settled notes tied to Charter Communications Inc. after the market close on Wednesday with price talk for a reoffer price of 104, a coupon of 0% to 0.125% and an initial conversion premium of 22.5% to 25%, according to market sources.

Sources were less than enthusiastic about more cash-settled equity linked notes entering the convertibles space.

“This is exactly the type of issuance the market does not want to see,” a market source said.

The paper will be rated investment grade. With assumptions of 25 basis points over Libor and a 27% vol., the deal modeled out to fair value, a market source said.

After a banner year for mandatory convertible issuance and performance, the first mandatory deal of 2020 is on deck.

Elanco Animal Health Inc. plans to price $550 million, or 11 million, three-year par of $50 tangible equity units after the market close on Wednesday with price talk for a fixed dividend of 5% and a fixed threshold appreciation premium of 20%, according to a market source.

The equity units are pricing concurrently with a common stock offering of 19,159,866 shares. The common stock offering carries a greenshoe of 1,915,987 shares.

Meanwhile, the convertible secondary space continued to see steady trading volume with equity markets rebounding from the coronavirus jitters.

Tesla Inc.’s 2% convertible notes due 2024 dominated activity early in the session with the notes brushing up against double par as the electric car manufacturer’s market cap exceeded $10 billion.

The 2% notes were changing hands at 197 with more than $8 million in reported volume.

Tesla stock traded up to $582.01, an increase of 6.36%, shortly before 11 a.m. ET.

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