Sunnova Energy convertibles jump on debut; BlackLine gains; Oak Street contracts

By Abigail W. Adams

Portland, Me., Aug. 17 – New paper remained in focus in the convertibles market on Wednesday with the latest deal to clear the primary market playing to heavy demand during bookbuilding and performing well in its secondary market debut.

Sunnova Energy International Inc. priced an upsized $500 million offering of six-year convertible notes after the market close on Tuesday.

The new paper dominated activity in the secondary space. While volatile on an outright basis, the notes maintained a large dollar-neutral expansion throughout Wednesday’s session.

The new paper hit the secondary space on a red day for equity markets with U.K. inflation data and market jitters ahead of the release of the Federal Reserve’s July meeting minute notes leading to heavy selling early in the session.

Indexes pared their losses after the release of the minute notes in the mid-afternoon but still closed with losses as the market reassessed its views on the Federal Reserve’s dovish pivot that drove the rally in risk assets over the past three weeks.

The Dow Jones industrial average closed down 172 points, or 0.50%, the S&P 500 index closed down 0.72%, the Nasdaq Composite index closed down 1.25% and the Russell 2000 index closed down 1.64%.

There was $592 million on the tape less than one hour before the market close with Sunnova accounting for nearly one-quarter of the total reported volume in the space.

BlackLine Inc.’s 0% convertible notes due 2026 were also major volume movers on Wednesday with the notes gaining outright alongside stock.

Oak Street Health Inc.’s 0% convertible notes due 2026 were under pressure following a secondary offering by a selling stockholder, which dashed hopes for the company as a takeover candidate.

Sunnova expands

Sunnova priced an upsized $500 million offering of six-year convertible notes after the market close on Tuesday at par with a coupon of 2.625% and an initial conversion premium of 30%.

Pricing came at the cheap end of narrowed talk for a coupon of 2.375% to 2.625% and at the rich end of narrowed talk for an initial conversion premium of 27.5% to 30%.

Initial price talk was for a coupon of 2.375% to 2.875% and a premium of 25% to 30%.

The new paper was volatile on an outright basis but maintained a large dollar-neutral expansion throughout Wednesday’s session.

The notes were changing hands at 101.25 versus a stock price of $25.68 early in the session.

However, they traded down to par mid-session.

The notes were seen at 100.5 versus a stock price of $25.44 in the late afternoon.

They expanded 2 to 2.5 points dollar-neutral, a source said.

The notes dominated activity in the secondary space, accounting for $68 million out of the $106 million in reported volume about one hour into the session.

Sunnova’s stock traded to a high of $26.06 and a low of $2.78 before closing the day at $25.37, a decrease of 3.68%.

BlackLine gains

BlackLine’s 0% convertible notes due 2026 were on the rise in heavy volume as stock defied the broader market to make large gains on Wednesday.

The 0% notes gained 2 points outright with stock up over 9% in intraday activity.

The notes were changing hands at 86.625 versus a stock price of $75.52 in the late afternoon.

There was $23 million in reported volume.

BlackLine’s stock traded to a high of $76.08 and a low of $67.51 before closing the day at $74.35, an increase of 7.58%.

There was no clear catalyst for the activity in BlackLine on Wednesday.

However, the finance and accounting software company delivered a large earnings surprise earlier in August and has long been identified as a potential takeout target.

Industry peer Avalara Inc.’s announced acquisition by private equity firm Vista Equity Partners in early August sent its 0.25% convertible notes due 2026 soaring.

The 0.25% notes continue to trade on a 96-handle on Wednesday, about 15 points higher outright than their level prior to the early August announcement.

Avalara’s acquisition is set to close in the second half of 2022.

Oak Street contracts

Oak Street’s 0% convertible notes due 2026 were under pressure on Wednesday following a secondary offering with the selling stockholder a company insider.

The 0% convertible notes fell 1 point outright to close the day at 79.25.

They contracted 0.5 point dollar-neutral.

Oak Street’s stock traded to a high of $26.74 and a low of $25 before closing the day at $25.30, a decrease of 7.12%.

Oak Street’s convertible notes and stock were under pressure following a secondary offering of 7 million shares by major shareholder Newlight Harbour Point SPV, which is controlled by David Wassong and Ravi Yadav, according to the Securities and Exchange Commission filing.

The secondary offering will reduce Newlight Harbour’s stake to 13.9% from 16.8%.

Oak Street has long been rumored to be a takeover target “but insider selling doesn’t help in that situation,” a source said.

Mentioned in this article:

BlackLine Inc. Nasdaq: BL

Oak Street Health Inc. NYSE: OSH

Sunnova Energy International Inc. NYSE: NOVA

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