Morning Commentary: Infinera on deck; Arbor wrapped around issue; Royal Caribbean gains

By Abigail W. Adams

Portland, Me., Aug. 3 – New convertible paper was in focus on Wednesday with one $275 million offering set to price after the market close and $1.25 billion of new paper entering the market.

While the primary market has been on a roll with three deals in as many days, the offerings have all come as refinancing and will do little to increase the net size of the convertibles market, sources said.

However, the new deals have come been coming with attractive coupons.

Infinera Corp. plans to price $275 million of six-year convertible notes after the market close on Wednesday.

The deal looked cheap based on underwriters’ assumptions, sources said.

Meanwhile, new paper from Arbor Realty Trust Inc. made its aftermarket debut with the notes holding at issue price in early trading.

Royal Caribbean Group’s newly priced 6% convertible notes due 2025 continued to surge higher after a strong aftermarket debut on Tuesday.

Infinera eyed

Infinera plans to price $275 million of six-year convertible notes after the market close on Wednesday with price talk for a coupon of 3.25% to 3.75% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of 750 basis points over Libor and a 40% vol., a source said.

Using those assumptions, the deal looked 3.25 points cheap at the midpoint of talk, assuming a normal borrow.

The deal is the latest refinancing deal in the convertibles market with refinancings accounting for the lion’s share of recent issuance.

Proceeds will be used to repurchase a portion of the company’s 2.125% convertible notes due 2024 in privately negotiated transactions.

There is about $400 million of the 2.125% notes outstanding.

The 2.125% notes have been trading in the 97 to 98 range over the past few sessions, according to Trace data.

Arbor flat

Arbor Realty priced an upsized $250 million of three-year convertible notes after the market close on Tuesday at the cheap end of talk with a coupon of 7.5% an initial conversion premium of 10%.

Price talk was for a coupon of 7% to 7.5% and an initial conversion premium of 10% to 15%, according to a market source.

The greenshoe was also upsized to $37.5 million.

The initial size of the deal was $200 million with a greenshoe of $30 million.

The notes played to solid demand during bookbuilding, a source said.

However, they fell flat in secondary market activity with the notes wrapped around par on an outright basis.

Arbor’s stock was also either side of flat early in Wednesday’s session. It was changing hands at $15.16, a decrease of 0.20%, shortly before 11 a.m. ET.

The deal was also a refinancing with proceeds used to repurchase a portion of the company’s 4.75% convertible notes due Nov. 1, 2022 for cash.

The 4.75% notes appeared to be repurchased for 101.15 to 101.40, a source said.

Royal surge continues

Royal Caribbean’s newly priced 6% convertible notes due 2025 added to their gains in early trading on Wednesday.

The notes traded up to 107.25 early in the session.

They expanded another 0.25 to 0.375 points on hedge, a source said.

Royal Caribbean’s stock was changing hands at $38.07, an increase of 3.85%, shortly before 11 a.m. ET.

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