Morning Commentary: Sunnova convertibles offering eyed; Halozyme jumps on debut

By Abigail W. Adams

Portland, Me., Aug. 16 – New paper remained in focus on Tuesday with one new offering slated to price after the market close and one new deal making its aftermarket debut.

Sunnova Energy International Inc. plans to price $425 million of six-year convertible notes after the market close on Tuesday.

The deal looked cheap based on underwriters’ assumptions although the borrow on the heavily shorted stock was tough.

Meanwhile, Halozyme Therapeutics Inc. priced an upsized $625 million of six-year convertible notes after the market close on Monday.

The deal played to heavy demand during bookbuilding and jumped on its secondary market debut.

Sunnova eyed

Sunnova Energy plans to price $425 million of six-year convertible notes after the market close on Tuesday with price talk for a coupon of 2.375% to 2.75% and an initial conversion premium of 25% to 30%.

The deal was heard to be in the market with assumptions for a credit spread of 650 basis points over Libor and a 45% vol.

Using those assumptions, the deal looked 4.5 points cheap at the midpoint of talk assuming a normal borrow, a source said.

Short interest in the Houston-based solar and energy storage service provider is extremely high at 18.5%.

However, the borrow appeared to be fine, a source said.

There was debate over the credit spread of 650 bps, which some saw as wide and others saw as tight.

The company’s outstanding 5 7/8% senior green notes due 2026 currently trade with a 422 bps spread over the five-year Treasury note, a product of the massive tightening in labor markets over the past three weeks.

While some sources saw the 650 bps as wide given its straight debt, others saw the assumption as in line given the additional duration risk and the convertible notes’ lower place in the capital structure.

Halozyme jumps on debut

Halozyme Therapeutics priced an upsized $625 million of six-year convertible notes after the market close on Monday at par with a coupon of 1% and an initial conversion premium of 30%.

Pricing came at the rich end of talk for a coupon of 1% to 1.5% and the midpoint of talk for an initial conversion premium of 27.5% to 32.5%.

The greenshoe was also upsized to $95 million.

The initial size of the offering was $500 million with a greenshoe of $75 million.

The new paper played to heavy demand during bookbuilding with a portion of proceeds used to refinance its 1.25% convertible notes due 2024.

The 1.25% convertible notes were exchanged for $77.6 million in cash and 1.51 million shares in privately negotiated transactions.

The deal also came as a happy meal with $90 million of net proceeds to be used to repurchase 2.09 million shares of common stock concurrently with the closing of the offering.

The demand for the new paper followed it into the secondary space where it jumped on an outright and dollar-neutral basis.

The 1% notes were changing hands at 102.375 versus a stock price of $43.53 early in the session.

They expanded 2.5 points dollar-neutral.

The notes dominated activity in the secondary space, accounting for $64 million of the $122 million in reported volume about one hour into the session.

Halozyme’s stock was seen at $43.40, an increase of 0.71%, shortly before 11 a.m. ET.

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