Avantor convertible preferreds expand on debut; Tesla gets ‘walloped’; Ensco active

By Abigail W. Adams

Portland, Me., May 17 – While increasing trade war tensions have roiled capital markets and dampened new issue activity, one convertible deal did price before the week drew to a close.

Avantor Inc. priced a massively upsized $900 million, or 18 million share, offering of three-year $50-par series A mandatory convertible preferred stock prior to the market open on Friday.

The deal priced concurrently with Avantor’s $2.8 billion initial public offering – the second largest to date in 2019.

There was significant demand for the new convertible preferreds, which saw a large expansion on their secondary market debut.

While the new paper was in focus, several other names in the secondary space saw an uptick of activity.

Tesla Inc.’s convertible notes “got walloped” on Friday with all three tranches contracting as stock continued to sink lower.

Ensco Jersey Financial plc’s 3% convertible notes due 2024 were active with the notes up slightly after news broke the company had won a settlement in arbitration court.

Avantor expands

Avantor priced a massively upsized $900 million, or 18 million share, offering of three-year $50-par series A mandatory convertible preferred stock after the market close on Thursday at the cheap end of talk with a dividend of 6.25% and a threshold appreciation premium of 17.5%.

Price talk had been 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 greenshoe was also upsized to $135 million, or 2.7 million shares.

The initial size of the offering was $500 million, or 10 million shares, with a greenshoe of $75 million, or 1.5 million shares.

Avantor also priced an upsized 206,999,900 shares of common stock at $14.00 per share.

The public offering carries a greenshoe of 31.05 million shares.

While the number of shares increased from 153,999,900 shares, the public offering price decreased from the initial range of $18.00 to $21.00 per share.

The mandatory convertible preferreds were not active early in Friday’s session with Avantor stock not yet open to trade, a source said.

However, once the stock opened, the mandatory convertible preferreds were trading “fast and furious,” a market source said.

The convertible preferreds traded as high as $53.00 during Friday’s session and were seen at $51.63 in the mid-afternoon.

They expanded about 1.5 points dollar-neutral, a market source said.

Avantor stock traded as high as $14.95 before closing the day at $14.45.

There was massive demand for the new mandatory convertible preferreds, especially with Alibaba Group’s mandatory convertibles about to retire, a source said.

Tesla gets ‘walloped’

Tesla’s convertible notes were getting “walloped” on Friday as stock continued to trend lower.

Tesla’s newly priced 2% convertible notes hit their lowest outright price since their secondary market debut.

The notes were changing hands at 92.5 in the late afternoon. They were contracted 0.5 point dollar-neutral, a market source said.

The 2% notes were trading with a credit spread that was 175 bps to 200 bps wider than the 575 bps over Libor credit spread assumption the deal was marketed with, a source said.

While the notes have been coming in since their initial dollar-neutral expansion, prior to Friday’s session, they were able to maintain a 0.5 point expansion.

The move on Friday eroded the note’s remaining expansion.

Tesla’s 2.375% convertible notes due 2022 were also contracted about 0.5 point dollar-neutral, a market source said.

The 1.25% convertible notes due 2021 were down about 0.25 point dollar-neutral.

Tesla stock traded as high as $222.24 and as low as $208.92 before closing Friday at $211.03, a decrease of 7.58%.

Stock sunk on Friday after the electric car manufacturer unveiled another cost-cutting plan.

Tesla’s autopilot feature has also come under scrutiny after a National Safety Transportation Board investigation determined the autopilot feature was active during a fatal crash in Florida in 2018.

Ensco active

Ensco’s 3% convertible notes due 2024 were active on Friday after news broke the company had won a settlement in arbitration court.

The 3% convertible notes were wrapped around 79.375 in active trading. They were up about 0.5 point from the last round lot trade, a market source said.

The notes largely trade for the yield.

Ensco was awarded $180 million by an arbitration tribunal in a case against Samsung Heavy Industries stemming from a 2016 case involving losses from a cancelled drill services agreement.

Mentioned in this article:

Avantor Inc. NYSE: AVTR

Ensco Jersey Financial plc NYSE: ESV

Tesla Inc. Nasdaq: TSLA

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