Nikola convertible notes price, get converted; Sunnova under pressure

By Abigail W. Adams

Portland, Me., Dec. 8 – The convertibles primary market capped an active week for new deal activity with one last offering pricing.

Nikola Corp. priced a downsized $175 million of three-year green convertible notes after the market close on Thursday.

The offering was unique on many levels with the notes immediately convertible for stock and the remaining coupon payments covered in cash.

It was essentially an extremely expensive way to issue equity with the convertible issue expected to be converted out in full in a matter of weeks.

While the primary market capped the week with a unique offering, the four deals totaling $2.625 billion that priced earlier in the week were met with strong demand.

There may be some activity in the week ahead, which is expected to be the last hurrah before the market begins to close the books on 2023.

The secondary space saw a quiet session on Friday after an active week with activity around recent issues beginning to settle.

Equity indexes closed the day with gains while Treasury markets were weak with yields again on the rise after the U.S. Nonfarm Payrolls report came in better than expected.

The Dow Jones industrial average closed Friday up 130 points, or 0.36%, the S&P 500 index closed up 0.41%, the Nasdaq Composite index closed up 0.45% and the Russell 2000 index closed up 0.67%.

There was $46 million in reported volume about one hour into the session and $346 million in reported volume in the late afternoon.

Sunnova Energy International Inc.’s 2.625% convertible notes due 2028 were under pressure in active trade as Congressional republican leaders scrutinized the Department of Energy’s financial support to the company.

Nikola converted

Nikola priced a downsized $175 million of three-year green convertible notes after the market close on Thursday at par with a coupon of 8.25% and an initial conversion premium of 20%.

Pricing came at the cheap end of price talk for a coupon of 7.75% to 8.25% and an initial conversion premium of 20% to 25%, according to a market source.

The offering was unique.

Nikola is a highly speculative credit with a profile that investors remain wary of despite the recent rally in the market.

The offering downsized from the initial $200 million, and the greenshoe, which was initially $30 million, was removed.

The convertible notes priced alongside a follow-on offering of 133,333,334 shares at a public offering price of $0.75.

While many steered clear of the offering with Nikola considered a bankruptcy candidate, the downsize may have had more to do with the number of underlying shares for the convertible notes with the company unable to issue more, a source said.

The convertible notes were “all over the place,” in the aftermarket, a source said.

They traded as low as 93.5 to 94 pre-market but popped above par after the opening bell with stock in the green, a source said.

The notes changed hands at 100.25 in some scattered round-lot trades early in the session.

However, they sank well below par in the late afternoon with the notes wrapped around 95.

There was $15 million in reported volume.

Among the unique features of Nikola’s convertible notes offering was the notes’ ability to be immediately converted with the remaining coupon payments for the notes covered in cash.

And that is what buyers of the notes were doing – immediately converting the notes, selling the stock and banking the coupon payments, a source said.

While holders took a loss on the convertible notes, it was more than made up for by the 24.75 points made on interest.

Sources expect the full issue size to get converted out in a matter of weeks.

“This was essentially just equity that was issued at an outrageous price,” a source said.

Nikola’s stock traded to a low of $0.68 and a high of $0.77 before closing at $0.71, a decrease of 5.05%.

Nikola’s stock sank more than 20% the previous session to fall well below the $1 Nasdaq listing requirement.

If Nikola’s stock remains below $1 for 30 consecutive trading days, the company will be served a deficiency notice and given 180 days to remedy the situation or face a delisting.

Nikola may be forced to do a reverse stock split to remedy the situation, a source said.

Sunnova under pressure

Sunnova’s 2.625% convertible notes due 2028 were under pressure in active trade as the company comes under the scrutiny of Congressional republican leaders.

The 2.625% notes sank almost 10 points outright with stock off 16%.

They were trading at $51.25 versus a stock price of $10.15 in the late afternoon, according to a market source.

The notes contracted several points dollar-neutral, a source said.

There was $10 million in reported volume.

Sunnova’s stock traded to a low of $9.56 and a high of $12.44 before closing at $10.41, down 16.12%.

Stock plunged after the solar and energy storage company came under the scrutiny of republican Congressional leaders, who questioned the Department of Energy’s loans to the company given consumer complaints about alleged predatory sales practices.

Mentioned in this article:

Nikola Corp. Nasdaq: NKLA

Sunnova Energy International Inc. NYSE: NOVA

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