Freshpet convertible offering oversubscribed amid shareholder opposition; Rivian falls

By Abigail W. Adams

Portland, Me., March 15 – The convertibles primary market broke its silence after SVB Financial Group’s failed capital raise with one new offering on deck.

Freshpet Inc. plans to price $350 million of five-year convertible notes after the market close on Wednesday.

While the deal was initially off to a rough start amid fresh turmoil in the banking sector and opposition from shareholder JANA Partners, books closed in the early afternoon with the offering multiple times oversubscribed, sources said.

Equity and credit markets saw a fresh round of selling after headlines regarding Credit Suisse again shook investor confidence in the banking sector.

The latest Producer Price Index report, which indicated a faster rate of disinflation than previously anticipated, also helped bolster market bets for rate cuts by the end of 2023.

Equity indexes were deep in the red for the majority of Wednesday’s session but pared their losses to close mixed following headlines that Swiss authorities were in talks with Credit Suisse to stabilize the bank.

The Dow Jones industrial average closed down 281 points, or 0.87%, the S&P 500 index closed down 0.70%, the Nasdaq Composite index closed up 0.05% and the Russell 2000 index closed down 1.74%.

Treasuries skyrocketed amid fresh turmoil in the banking sector and renewed calls for a rate cut in the coming year with the two-year Treasury yield down 37 basis points to close Wednesday at 3.879% and the 10-year yield down 23 bps to close at 3.462%.

“There’s a lot of dislocation in the market,” a source said.

There was $472 million in reported volume about one hour before the market close with activity continuing to center on large liquid issues.

Southern Co.’s 3.875% convertible notes due 2025 (Baa2/BBB) dominated the tape with the notes hitting par for the first time since pricing.

Rivian Automotive Inc.’s 4.625% convertible notes due 2029 remained under pressure with the notes hitting a new outright low and seeing a large dollar-neutral contraction.

Freshpet oversubscribed

Freshpet plans to price $350 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 2.5% to 3% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of 650 bps over SOFR and a 42% vol., according to a market source.

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

The offering launched post-close on Tuesday with markets appearing to stabilize from the shockwaves of SVB’s collapse.

Markets appeared to be back to business as usual with the deal expected to play to strong demand.

“It’s not a financial. It should do fine,” a source said.

While stock was off 9% in aftermarket trade following the deal’s launch, the pet food company had a market cap of $2.39 billion, which far eclipsed the capital raise and was from a sector largely insulated from the chaos in the financial sector, another source said.

However, the offering sparked ire from Freshpet shareholder JANA Partners, which issued a statement in opposition to the convertible notes offering.

JANA Partners called the decision to launch an equity-linked capital raise “baffling,” with the company recently assuring stockholders that it would not issue equity because the company felt its stock price was undervalued.

The conversion premium range of 27.5% to 32.5% represents the price of the company’s stock at the time it claimed its stock price was too cheap, according to the press release.

“This decision is the latest failure by Freshpet’s board at a time when it could ill afford further damage to its credibility,” JANA Partners said in the press release. “We believe Freshpet requires either significant board change, or in the absence of such change, should be sold.”

Proceeds from the offering were to be used to expand their manufacturing capacity, “so the rationale for raising capital appears sensible,” a source said.

The deal was off to a rough start amid the early turmoil in markets but closed in the early afternoon with books multiple times oversubscribed, a source said.

The deal played to strong demand from outright accounts and existing shareholders, which will account for the bulk of allocations.

Pricing is expected to come at the cheap end of talk.

Freshpet’s stock fought back from a 10% drop at the open to close at $54.65, a decrease of 1.83%.

Southern Co. hits par

Southern Co.’s 3.875% convertible notes due 2025 dominated activity in the secondary space on Wednesday with the notes hitting par for the first time since pricing.

The 3.875% notes traded at 99.75 versus a stock price of $66.71 early in the session, according to a market source.

They rose to trade just north of par versus a stock price of $67.40 in the late afternoon.

There was $52 million in reported volume.

Southern Co.’s stock traded to a low of $65.83 and a high of $68.03 before closing the day at $67.65, an increase of 2.22%.

Southern Co.’s convertible notes have struggled below par in the aftermarket since the $1.5 billion issue priced at par on Feb. 24.

Rivian falls

Rivian’s 4.625% convertible notes due 2029 continued their downward trend on Wednesday with the notes falling on an outright and dollar-neutral basis.

The 4.625% notes were off 2 points outright as stock wavered between gains and losses.

They traded down to 92.5 versus a stock price of $13.01 in the late afternoon.

They contracted 1 point dollar-neutral, a source said.

There was $11 million in reported volume.

Rivian’s stock traded down to a 52-week low of $12.80 and a high of $13.39 before closing at $13.03, a decrease of 1.36%.

Rivian’s 4.625% convertible notes saw a volatile start after the $1.3 billion issue, which was recently lifted to $1.5 billion following the full exercise of the greenshoe, priced at par on March 7.

While the notes shook off early weakness to trade as high as 103 on an outright basis, they gave back all outright and dollar-neutral gains amid the heavy selling following SVB’s collapse.

The notes have been on a strong downtrend since last Friday.

Mentioned in this article:

Freshpet Inc. Nasdaq: FRPT

Rivian Automotive Inc. Nasdaq: RIVN

Southern Co. NYSE: SO

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.