Morning Commentary: Arbor Realty convertibles on deck; Royal Caribbean jumps on debut

By Abigail W. Adams

Portland, Me., Aug. 2 – It was an active day in the convertibles secondary space with the convertibles primary market reigniting activity with two refinancing deals.

After a month with no issuance, the primary market priced a $1 billion offering with another $200 million offering slated for after the market close.

Arbor Realty Trust Inc. plans to price $200 million of three-year convertible notes after the market close on Tuesday with price talk for a coupon of 7% to 7.5% and an initial conversion premium of 10% to 15%, according to a market source.

The deal was heard to be in the market with assumptions of 550 basis points over Libor and a 20% vol., according to a market source.

Using those assumptions, the deal modeled 2.7 points cheap at the midpoint of talk.

Proceeds from the offering will be used to repurchase a portion of the company’s 4.75% convertible notes due Nov. 1, 2022 for cash.

Royal Caribbean Group priced an upsized $1 billion offering of three-year convertible notes after the market close on Monday at the midpoint of talk with a coupon of 6% and an initial conversion premium of 40%.

Price talk was for a coupon of 5.75% to 6.25% and an initial conversion premium of 37.5% to 42.5%.

The greenshoe was also upsized to $150 million.

The initial size of the offering was $900 million with a greenshoe of $135 million.

The new paper jumped on its secondary market debut.

The notes were trading at 102.5 early in the session.

The convertibles expanded about 2.5 points on a dollar-neutral, or hedged, basis, a source said.

After opening the day in the red, Royal Caribbean’s stock turned positive alongside broader markets and was changing hands at $36.55, an increase of 2.12%, shortly before 11 a.m. ET.

Proceeds from the offering were used to repurchase $350 million principal amount of the company’s 2.875% convertible notes due Nov. 15, 2023 and $800 million principal amount of the 4.25% convertible notes due June 15, 2023 in privately negotiated transactions.

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