Coinbase convertibles on deck; Sunnova Energy, UGI eyed; secondary quiet; Airbnb active

By Abigail W. Adams

Portland, Me., May 17 – The convertibles primary market was active on Monday with three deals on deck.

As Bitcoin got pummeled and broke well below its $50,000 support level, Coinbase Global Inc., one of the largest cryptocurrency exchanges, launched the largest convertible notes offering of the month.

The deal looked cheap based on underwriters’ assumptions.

However, the credit spread seemed aggressive for such a young company, sources said.

Two deals from the energy sector – one from a solar company and one from a natural gas and electric utility – are also on deck.

Sunnova Energy International Inc., a Houston-based solar and energy storage service provider, plans to price $500 million of five-year convertible notes and UGI Corp., a Valley Forge, Pa.-based natural gas and electric utility holding company, plans to price $200 million par-of-$100 equity units after the market close on Monday.

Both deals modeled cheap based on underwriters’ assumptions.

While Sunnova was from the renewable energy field, which has been hot with investors in recent months, UGI was a better-quality credit and the deal was more attractive, sources said.

Meanwhile, it was a quiet day in the secondary space with many on the sidelines as equities struggle to find direction.

While equity benchmarks were in the red on Monday, they pared their losses heading into the close to end the day mostly flat.

The Dow Jones industrial average closed the day down 54 points, or 0.16%, the S&P 500 closed the day down 0.25% and the Nasdaq composite finished down 0.38%.

There was $60 million in reported volume early in the session and $535 million on the tape at the market close.

Airbnb Inc.’s 0% convertible notes due 2026 were active with the notes trading down on an outright basis as stock continued to get pummeled.

Coinbase on tap

Coinbase plans to price $1.25 billion of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 55% to 60%, according to a market source.

The deal was heard to be in the market with assumptions of 200 basis points over Libor and a 45% vol.

Using those assumptions, the deal looked about 2 points cheap at the midpoint of talk.

However, the credit spread seemed aggressive for such a young company.

Coinbase debuted on the Nasdaq on April 14 through a direct listing. Shares closed their first day of trading at $328.28 and have steadily declined since.

Coinbase’s stock closed Monday at $248.24, a decrease of 3.92%.

While Coinbase handily beat expectations in its first earnings report as a public company last Thursday, it did little to change the downward trajectory of the stock, which has been under pressure in recent sessions alongside Bitcoin.

Bitcoin has taken a beating as Tesla CEO Elon Musk flip-flopped in his support of the cryptocurrency.

After breaking below $50,000 over the weekend, Bitcoin was changing hands at $44,414 shortly before 5 p.m. ET.

Sunnova eyed

Sunnova Energy plans to price $500 million of five-year convertible notes after the market close on Monday with price talk for a coupon of 0% to 0.25% and an initial conversion premium of 30% to 35%, according to a market source.

The deal was heard to be in the market with assumptions of 425 bps over Libor and a 45% vol., a source said.

Using those assumptions, the deal looked 1.36 points cheap at the midpoint of talk.

The credit spread was aggressive for a solar company, a source said.

“They’ve just never proven their price point,” the source said.

However, solar energy companies have become increasingly popular with investors, especially given the Biden administration’s stated commitment to a green economy.

UGI in focus

UGI plans to price $200 million par-of-$100 equity units after the market close on Monday with price talk for a yield of 6.875% to 7.375% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

The units consist of a stock purchase contract and a 10% interest in a par-of-$1,000 series A cumulative perpetual convertible preferred stock.

The deal was heard to be in the market with assumptions of 225 bps over Libor and a 23% to 25% vol., a source said.

Using those assumptions, the deal looked 4.19 points cheap at the midpoint of talk.

The holding company for natural gas, midstream assets, and electric utilities had a tight enough credit spread where they were able to price a convertible preferred, as opposed to a convertible bond, a source said.

While fossil fuels may be falling out of favor with investors, the company is a solid credit and the deal terms were extremely attractive.

The commodity prices for fossil fuels seem to have priced in the expectation for their demise, “which may then cause an under-estimate of their future cash flows,” another source said.

In terms of the renewable vs. fossil fuel debate, companies such as UGI are aware of the need to reduce their carbon emissions and may surprise with efforts to become greener, a source said.

Airbnb active

Airbnb’s 0% convertible notes due 2026 were active on an otherwise quiet day in the secondary space.

The notes were again trading down on an outright basis as stock got “pummeled,” a source said.

The notes were changing hands at 91 versus a stock price of $132.72 in the late afternoon.

There was more than $19 million on the tape.

Airbnb’s stock traded to a high of $137.79 and a low of $130.25 before closing the day at $132.50, a decrease of 6.16%.

Mentioned in this article:

Airbnb Inc. Nasdaq: ABNB

Coinbase Global Inc. Nasdaq: COIN

Sunnova Energy International Inc. NYSE: NOVA

UGI Corp. NYSE: UGI

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