Morning Commentary: HCI convertible notes price; Avaya trades lower on payoff concerns

By Abigail W. Adams

Portland, Me., May 19 – The convertibles primary market reared its head on a brutal week for risk assets with one new offering pricing.

HCI Group Inc. priced $150 million of convertible notes due 2042 before the market open on Thursday at the cheap end of talk with a coupon of 4.75% and an initial conversion premium of 25%.

Price talk was for a coupon of 4.25% to 4.75% and an initial conversion premium of 25% to 30%.

The deal included a forward stock purchase agreement to help facilitate hedge players.

However, the small deal was wall-crossed and was tightly tucked away with no action in the secondary space early in Thursday’s session.

Meanwhile, equity indexes saw a choppy start to the day and were wavering between gains and losses after Wednesday’s blood bath.

The Dow Jones industrial average was down another 363 points, or 1.15%, the S&P 500 index was down 0.68%, the Nasdaq Composite index was up 0.15% and the Russell 2000 index was down 0.21% shortly before 11 a.m. ET.

There was $68 million in reported volume with few names seeing concentrated trading activity.

Avaya Holdings Corp.’s 2.25% convertibles due June 15, 2023 were weaker in active trading.

The notes were down about 1 point outright with stock off early in the session.

The 2.25% notes were changing hands at 85.5 versus a stock price of $4.79 early in the session.

The yield on the notes was 17.85%.

There was $5 million in reported volume.

Avaya’s stock traded down to $4.75 early in the session but was changing hands at $4.95, an increase of 0.10%, shortly before 11 a.m. ET.

The cloud communications technology company’s short-duration 2.25% notes have tumbled 24 points since January as stock tanked 77%.

The company recently revised its third-quarter guidance to well below analyst expectations.

Holders are beginning to show concern about the company’s ability to pay off the $350 million issue at maturity, a source said.

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