Cracker Barrel, Vroom convertible notes on deck; NextEra below par; DraftKings contracts

By Abigail W. Adams

Portland, Me., June 15 – New convertible bonds were in focus on Tuesday with two new offerings on deck and one new deal making its aftermarket debut.

Cracker Barrel Old Country Store Inc. plans to price a $275 million offering and Vroom Inc. a $500 million offering of five-year convertible notes after the market close on Tuesday.

Both deals looked cheap based on underwriters’ assumptions.

Meanwhile, NextEra Energy Partners LP priced a $500 million offering of three-year convertible notes in an overnight deal on Monday.

The new paper was under pressure on their aftermarket debut and trading well below par.

DraftKings Inc.’s 0% convertible notes due 2028 were also trading off on an outright and dollar-neutral basis as the company became the latest convertible issuer to be the target of a short-seller report.

Cracker Barrel eyed

Cracker Barrel plans to price $275 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.375% to 0.875% and an initial conversion premium of 25% to 30%.

Underwriters were marketing the deal with assumptions of 325 basis points over Libor and a 30% vol., according to a market source.

Using those assumptions, the deal looked about 1 point cheap at the midpoint of talk.

While some sources felt the coupon range was lacking, others felt the deal was priced appropriately for the market.

Vroom eyed

Vroom plans to price $500 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.75% to 1.25% and an initial conversion premium of 35% to 40%.

Underwriters were marketing the deal with assumptions of 450 bps over Libor and a 42% vol, according to a market source.

Using those assumptions, the deal looked 2.5 points cheap at the midpoint of talk.

The deal was heard to be in demand with books closing early.

The e-commerce company for used vehicles has plenty of cash on the books, a source said.

About 10% of the float is shorted.

NextEra below par

NextEra priced $500 million of three-year convertible notes after the market close on Monday at par with a coupon of 0% and an initial conversion premium of 20%.

Pricing came in line with talk for a fixed coupon of 0%, a fixed initial conversion premium of 20% and at the cheap end of talk for a reoffer price of par to 100.5.

While the deal came at par to yield 0%, NextEra’s convertible notes would have been the first Rule 144A convertible deal to carry a negative yield had it priced at the rich end of talk.

The new paper hit the secondary space on a red day for equities as the S&P 500 and Nasdaq Composite pulled back from their record highs.

The 0% notes traded to a low of 98.5 early in the session.

They were changing hands between 99 and 99.5 a little more than one hour into the session, according to a market source.

The 0% notes remained on a 99-handle heading into the afternoon. They were changing hands at 99.25 versus a stock price of $73.04 heading into the market close.

The notes were active with more than $45 million in reported volume heading into the market close.

NextEra’s common units traded to a low of $71.15 and a high of $74.25 before closing the day at $73.52, a decrease of 2.52%.

While the notes struggled on an outright basis on Tuesday, the company was a solid credit and the notes were only three-year paper.

“It’s a good buying opportunity,” a source said.

DraftKings contracts

DraftKings’ 0% convertible notes due 2028 were under pressure on Tuesday with the notes trading down on an outright and dollar-neutral basis.

The 0% notes were down about 3 points outright with stock off more than 5% in intraday activity.

The notes were changing hands at 88.5.

They contracted about 1 point dollar-neutral, a source said.

DraftKings’ stock traded to a low of $44.65 and a high of $49.05 before closing the day at $48.51, a decrease of 4.17%.

Stock took a hit after Hindenburg Research took aim at the sports betting operator.

Hindenburg announced it was shorting the company and released a report alleging that a portion of DraftKings’ revenue is generated through illicit activity, which SBTech, a gaming technology company DraftKings merged with in the SPAC deal that took it public in 2020, was predominately responsible for.

Lordstown Motors was another Hindenburg target.

Following an internal investigation into the allegations made in the Hindenburg report, Lordstown announced its chief executive officer and chief financial officer were resigning on Monday.

Mentioned in this article:

Cracker Barrel Old Country Store Inc. Nasdaq: CBRL

DraftKings Inc. Nasdaq: DKNG

NextEra Energy Partners LP NYSE: NEP

Vroom Inc. Nasdaq: VRM

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