PG&E mandies volatile; Xeris upsizes; American Airlines active; Luckin to delist

By Abigail W. Adams

Portland, Me., June 26 – The convertibles primary market rounded out another high-volume week with two deals pricing despite the general weakness in the market.

PG&E Corp. priced $1.45 billion three-year par of $100 equity units after the market close on Thursday.

While some question whether the company would go through with the deal after its stock was decimated, Xeris Pharmaceuticals, Inc. upsized its offering of five-year convertible notes to $75 million.

The two deals brought the weekly tally to $6,047,500,000, which priced over seven deals.

While new deal volume was heavy, the May 10 week still holds the year-to-date record for new deal activity with $8.37 billion pricing in 15 deals, according to Prospect News data.

Meanwhile, it was another sloppy day in the secondary space with equities again selling off amid a spike in Covid-19 cases.

PG&E’s equity units were in focus with the notes volatile in high-volume activity.

American Airlines Group Inc.’s 6.5% convertible notes due 2025 remained active with the notes improved early in the session but again trading off into the market close.

While volume was light, Luckin Coffee Inc.’s 0.75% convertible notes due 2025 were down again after the scandal-plagued company announced its ADS would be delisted.

PG&E volatile

PG&E priced $1.45 billion three-year par of $100 equity units after the market close on Thursday at the rich end of talk with a coupon of 5.5% and a threshold appreciation premium of 22.5%.

Price talk was for a dividend of 5.5% to 6% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

The units consist of a prepaid forward stock purchase contract and a zero-coupon U.S. treasury strip.

Concurrently with the equity units, the company priced a $4 billion, or 423,372,629 share, common stock offering at $9.50 per share.

The equity units were volatile on debut. They traded as high as 103 and expanded as much as 2 points early in the session.

However, they came in as the session progressed.

The units were changing hands at 99 in the mid-afternoon. While they gave up much of their gains, the units were still expanded about 0.5 point dollar-neutral, a source said.

However, the units continued to sell off into the close, ending the day at 96.80.

PG&E stock traded to a high of $10.06 and a low of $9.01 before closing the day at $9.13, a decrease of 6.17%.

Xeris upsizes

Xeris priced an upsized $75 million of five-year convertible notes after the market close on Thursday at par at the cheap end of talk with a coupon of 5% and an initial conversion premium of 12.5%.

Price talk was for a coupon of 4.5% to 5% and an initial conversion premium of 12.5% to 17.5%, according to a market source.

The greenshoe was also upsized to $11.25 million.

The initial size of the offering was $60 million with a greenshoe of $9 million.

Concurrently, the company priced a secondary offering of $20 million, or 7.4 million shares, of common stock at $2.72.

Xeris stock was decimated on Thursday, closing the day down 48%, which led some to question whether the company would follow through with the offering.

“They obviously needed the cash,” a source said.

The notes were slow to trade on Friday with only about $3 million in reported volume in the mid-afternoon.

However, they were trading around par as losses continued to mount for the stock.

Xeris stock traded down to close Friday at $2.51, a decrease of 7.72%.

The market cap of the company was $94.35 million at Friday’s close.

American Airlines active

American Airlines’ 6.5% convertible notes due 2025 continued to see high-volume activity on Friday.

While the notes were improved early in the session they again sold off into the afternoon as stock got pummeled, sources said.

The notes traded as high as 94 with stock up early Friday.

However, they dropped back to an 88-handle in the late afternoon as the sell-off in equities intensified.

American Airlines stock traded to a high of $13.28 and a low of $12.13 before closing the day at $12.38, a decrease of 6%.

The travel and leisure sectors have borne the brunt of the sell-off in risk assets as investors’ jitters grow over the resurgence of Covid-19 cases and the reimposition of lockdowns.

The Luckin story

While volume was light, Luckin Coffee’s 0.75% convertible notes due 2025 were again trading off after the company announced its ADS would be delisted from the Nasdaq.

The 0.75% notes traded down to 27 after previously changing hands on a 29-handle, a source said.

The notes are putable upon certain fundamental changes, according to the company press release that announced their pricing.

Typically, there is a clause in the indenture governing convertible notes for delisting events, which would trigger an investor put, a source said.

While it was unknown whether the fundamental change includes a delisting event for Luckin Coffee’s convertible notes, the company is most likely unable to pay par for the notes anyway, a source said.

The 0.75% convertible notes were in hot demand shortly after they priced in early January, with sources describing them as “a monster” and “a beast” for their meteoric rise at the time.

The notes traded as high as 115 their first week in the aftermarket and expanded as much as 7 points dollar-neutral.

However, the 0.75% notes dropped below par in late January after an anonymous report accusing the company of accounting fraud circulated the market.

The legitimacy of the report was openly debated by short-sellers Muddy Waters Capital, which supported the accusations, and Citron Research, which disputed them.

The allegations proved to be accurate and the company announced in April that sales figures in 2019 had been doctored.

The 0.75% notes nosedived on the news, sinking more than 60 points outright to the low 20s and contracting 30 points dollar-neutral in a single session on April 2.

Nasdaq halted the trading of its shares and the convertible notes went quiet, as details emerged about the extent of the fraud that fueled the explosive growth of the Beijing-based coffee chain.

The trading halt was lifted in late May, and there was some sporadic trading of the convertible notes on speculation about an asset sale or acquisition.

However, with the company’s ADS to be delisted and the company most likely unable to cover the cost of a put, the convertible notes may end up worthless.

Luckin Coffee priced a $400 million issue of the convertible notes at par on Jan. 9 with the greenshoe later fully exercised raising the size of the issue to $460 million.

The convertible notes priced alongside a secondary offering of 9 million ADS, which priced at $42.00 a share.

Luckin’s ADS closed Friday at $1.38.

Mentioned in this article:

American Airlines Group Inc. Nasdaq: AAL

Luckin Coffee Inc. Nasdaq: LK

PG&E Corp. NYSE: PCG

Xeris Pharmaceuticals, Inc. Nasdaq: XERS

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