Liberty Latin America, Qudian on tap; Uniti, Change Healthcare deals look cheap; Caesars better

By Abigail W. Adams

Portland, Me., June 25 – The convertibles primary market stood poised for an active session with three deals on deck and one more joining the forward calendar on Tuesday.

Uniti Group Inc. planned to price $300 million of five-year exchangeable notes and Change Healthcare Inc. was expected to price its $250 million offering of three-year par of $50 tangible equity units after the market close on Tuesday.

In an overnight deal set to price shortly after it was announced, Liberty Latin America Ltd. planned to price $350 million in five-year convertible notes also after the market close.

Qudian Inc. plans to price $250 million in seven-year convertible notes in a Rule 144A and Regulation S offering, according to a company news release.

The deal carries a greenshoe of $37.5 million. Further details were not available as of press time.

The deals modeled cheap. However, the Uniti deal had some hair on it, sources said.

Meanwhile, activity in the secondary space was light with market players eyeing the new offerings in the works and equities tumbling on increased geopolitical tensions and statements from Federal Reserve officials, which called into question whether there would be a rate cut in July.

Caesars Entertainment Corp.’s 5% convertible notes due 2024 again dominated activity in the secondary space with the notes continuing to improve.

Liberty’s overnight deal

Liberty Latin America plans to price $350 million on Tuesday with price talk for a coupon of 1.5% to 2% and an initial conversion premium of 22.5% to 27.5%, according to a market source.

The deal was heard to be wall-crossed and mostly spoken for.

It was marketed with assumptions of 450 basis points over Libor and a 35% vol., according to a market source said. The deal modeled 4.72 points cheap at the midpoint of talk.

However, the deal may be pricing with a discount, a source said.

Uniti hairy

Uniti Group plans to price $300 million of five-year exchangeable notes after the market close on Tuesday with price talk for a coupon of 4% to 4.5% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The notes will be issued by subsidiary Uniti Fiber Holdings Inc.

Underwriters were marketing the deal with a credit spread of 775 bps over Libor and a 40% vol., according to a market source.

The deal modeled about 4.2 points cheap at the midpoint of talk, a source said.

The deal looked good according to the model. However, the name had some hair on it, another source said.

Uniti’s stock was cut in half in February as its largest customer, Windstream Corp., filed for bankruptcy.

There was speculation Uniti would soon follow.

While stock dropped from around $20 to $10 in February, the company still does some business, a source said.

The credit assumptions for the company were fair, and the large coupon compensated for some of the hairiness, the source said.

However, the history of the company was a cause for hesitation for some sources.

Uniti, a Little Rock, Ark.-based real estate investment trust, was created when Windstream spun off its wire and fiber-optic cable business.

Windstream and Uniti then entered into a lease-back arrangement for those assets.

A federal court ruled in February that the spinoff and lease-back arrangement violated the covenants of one of Windstream’s junk bonds, which pushed Windstream into bankruptcy.

Despite the hairiness of Uniti’s credit, the deal was heard to be in demand with the books closed by mid-afternoon.

Change looks cheap

After a long marketing period, Change Healthcare is expected to price its $250 million offering of three-year par of $50 tangible equity units after the market close on Tuesday.

Price talk is for a dividend of 5.75% to 6.25% and a threshold appreciation premium of 17.5% to 22.5%.

The deal was heard to be in the market with a credit spread of 400 bps over Libor and a 25% vol.

The deal modeled about 2.25 points cheap at the midpoint of talk, a source said.

However, assumptions are less important for mandatory deals, another source said.

The mandatory is pricing alongside Change Healthcare’s IPO of 42,857,142 shares with an offering price of $16.00 to $19.00 per share.

The mandatory offering was an equity surrogate and was most likely made due to a limitation on the amount of equity the company could raise, a source said.

However, with a shortage of mandatory paper in the convertibles universe, the deal was expected to do well.

The deal was also heard to have played to decent demand with the books closed by the mid-afternoon.

Change is the latest company to price a mandatory convertible offering alongside its IPO.

Avantor Inc. priced an 18 million share offering of three-year $50-par series A mandatory convertible preferred stock alongside its $2.8 billion IPO in mid-May.

The mandatory convertible preferreds have skyrocketed in the secondary space.

They closed Tuesday at $64.93, a decrease of 89 cents, or 1.35%.

Caesars improves

Caesars Entertainment’s 5% convertible notes due 2024 continued to improve in active trading on Tuesday with confidence growing that the deal would meet with regulatory approval.

The 5% notes gained 1 point outright to close Tuesday at 168.25.

Caesars stock closed the day at $11.56, an increase of 1.05%.

The notes skyrocketed on an outright and dollar-neutral basis on Monday as details of Eldorado Resorts’ buyout of the company emerged.

While there was some skepticism regarding whether the acquisition would meet with Chinese regulatory approval on Monday, investors were growing more confident on Tuesday, a market source said.

Mentioned in this article:

Avantor Inc. NYSE: AVTR

Caesars Entertainment Corp. Nasdaq: CZR

Liberty Latin America Ltd. Nasdaq: LILAK

Qudian Inc. NYSE: QD

Uniti Group Inc. Nasdaq: UNIT

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