NextEra Energy prices at discount; Pegasystems upsizes, tightens talk; Uniti skyrockets

By Abigail W. Adams

Portland, Me., Feb. 19 – The convertibles primary market was in high gear on Wednesday with one new deal pricing prior to the market open and one more on deck for after the market close.

NextEra Energy Inc. priced $2.5 billion three-year $50-par equity units at a discount prior to the market open on Wednesday.

The equity units fell flat in the aftermarket and were largely stuck at their issue price.

Pegasystems Inc. upsized and tightened talk on its planned offering of five-year convertible notes, which is slated to price after the market close on Wednesday.

While no new deals were announced on Wednesday, there is an active pipeline that is coming, sources said.

Sources expect a busy calendar in the coming week.

Meanwhile, Uniti Group Inc.’s 4% convertible notes due 2024 skyrocketed on both an outright and dollar-neutral basis as optimism grows about a settlement with its former parent company.

NextEra widens talk

NextEra Energy priced $2.5 billion three-year $50-par equity units prior to the market open on Wednesday with a reoffer price of $48.75, a dividend of 5.279% and a threshold appreciation premium of 25%, according to a market source.

Pricing came in line with revised talk for a reoffer price of $48.75, a fixed coupon of 5.279% and a fixed premium of 25%, according to a market source.

Initial price talk was for a reoffer price of $49, a fixed coupon of 5.279% and a fixed premium of 25%, according to a market source.

The reoffer price made the threshold appreciation premium more like 21.875% and the dividend 5.41436%, a market source said.

While the widened price talk made the deal more attractive, the equity units were largely stuck at their issue price in the aftermarket.

The units may have seen a nominal expansion with stock off during Wednesday’s session, but the units were, for the most part, trading flat, a source said.

They were seen at $48.55 bid, $48.75 offered versus a stock price of $275.00 early in the session.

They continued to change hands between $48.60 to $48.70 with stock fluctuating between $275.50 to $276.00 into the afternoon, sources said.

“Everyone had full allocations,” a market source said.

Due to the large size of the equity offering, there were not many buyers to lift the price in the secondary.

However, that could change with the equity units starting to cheapen, the source said.

NextEra stock traded to a low of $274.55 and a high of $277.12 before closing the day at $274.67, a decrease of 2.62%.

Pegasystems upsizes

Pegasystems upsized its planned offering of five-year convertible notes to $525 million and tightened talk to a yield of 0.75% to 1% and an initial conversion premium of 37.5%, according to a market source.

The greenshoe was also upsized to $75 million.

The deal is slated to price after the market close on Wednesday.

Initial price talk was for a coupon of 0.75% to 1.25% and an initial conversion premium of 32.5% to 37.5%.

The initial size of the offering was $450 million with a greenshoe of $67.5 million.

While sources pegged the deal cheap to fair value based on the assumptions used, the deal was heard to be heavily oversubscribed during bookbuilding.

The deal was marketed with assumptions of 225 basis points over Libor and a 28% vol., sources said.

Using those assumptions, the deal looked a little over 1 point cheap at the midpoint of initial price talk.

Some sources felt the software company deserved more conservative credit and vol. assumptions.

Using a credit spread of 250 bps over Libor and a 27% vol., the deal modeled just 0.25 point cheap at the midpoint of initial talk, a source said.

However, at the midpoint of revised price talk, the deal appeared to be fair value, a source said.

The Cambridge, Mass.-based software company has a good story, a market source said.

While the company has had poor earnings for the past two years, it is largely because it is transitioning from an outright sales model to a subscription model.

The process of switching models is always costly to earnings, “but it’s worth it in the end,” the source said.

Despite the poor earnings and the lack of cheapness to the deal, it was in demand.

Accounts were continuing to get inflows and there was money to be put to work, sources said.

Uniti skyrockets

Uniti’s 4% convertible notes due 2024 skyrocketed on an outright and dollar-neutral basis on Wednesday as optimism grows over the company being able to reach a settlement with its former parent company.

The 4% notes were up almost 13 points on an outright basis. They were changing hands at 112.5 in the late afternoon.

The notes were up 7 points dollar-neutral, a market source said.

Uniti’s stock traded to a low of $9.38 and a high of $10.76 before closing the day at $10.44, an increase of 13.66%.

Uniti skyrocketed as optimism grows about a possible settlement with the communications infrastructure REIT’s former parent company, Windstream Holdings.

Windstream was pushed into bankruptcy last year when a holder of one of its junk bonds challenged the spinoff of Uniti and the subsequent lease-back agreement between the two entities.

Windstream and Uniti have been in mediation to resolve issues related to the lease.

Uniti stock skyrocketed on Wednesday after a Cowen analyst expressed optimism that a deal may be struck in mediation that would be more beneficial to Uniti than previously thought.

If the two parties fail to come to a settlement in mediation, they will appear in court in March to settle the dispute.

Mentioned in this article:

NextEra Energy Inc. NYSE: NEE

Pegasystems Inc. Nasdaq: PEGA

Uniti Group Inc. Nasdaq: UNIT

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