TPI on deck; Alliant convertibles ‘marginally cheap’; Southern Co. notes move lower

By Abigail W. Adams

Portland, Me., Feb. 27 – The convertibles primary market promised another active week with one deal slated to price after the market close on Monday and one more on deck.

TPI Composites Inc. plans to price $100 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 5% to 5.5% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

Morgan Stanley & Co. LLC is bookrunner for the Rule 144A offering, which carries a greenshoe of $15 million.

Alliant Energy Corp. became the third investment-grade company to come to the convertibles primary market in the span of five business days with its offering of $500 million of three-year convertible notes (BBB+).

The deal looked “marginally cheap,” a source said, pricing that investment-grade rated paper can command due to demand.

While there were signs of indigestion in the market with Southern Co.’s $1.5 billion issue of 3.875% convertible notes due 2025 (Baa2/BBB) struggling in the aftermarket, the recent surge in IG issuance in the market was hailed as a positive long-term sign.

“This is good. This is an uptick in quality credit,” a source said.

While pricing may need to cheapen if the rapid pace of IG issuance continues, “I’d much rather have a lot of IG paper than CCC paper,” a source said.

Meanwhile, it was an active session in the convertibles secondary space with the $4.8 billion of new paper that priced the previous week continuing to drive trading activity.

Equity markets launched the week in positive territory although indexes closed well off the highs of the day with the Dow Jones industrial average closing up 72 points, or 0.22%, the S&P 500 index closing up 0.31%, the Nasdaq Composite index closing up 0.63% and the Russell 2000 index closing up 0.31%.

There was $102 million of convertibles trading volume on the tape about one hour into the session and $717 million on the tape about one hour before the market close.

While buyers were returning to the space, bonds were not being lifted to previous levels, a source said.

Southern Co.’s 3.875% convertible notes due 2025 continued to struggle in heavy volume with the notes moving lower on an outright and dollar-neutral basis.

PPL Capital Funding Inc.’s 2.875% convertible notes due 2028 (Baa1/BBB+) gave up all outright gains with the notes trading on a 99-handle in heavy volume.

onsemi’s 0.5% convertible notes due 2029 recovered on an outright basis with the notes popping above par on a green day for stock.

However, the notes were unchanged to slightly weaker on hedge.

Alliant eyed

Alliant Energy plans to price $500 million of three-year convertible notes after the market close on Monday with price talk for a coupon of 3.375% to 3.875% and an initial conversion premium of 25% to 30%.

The deal was heard to be in the market with assumptions of a credit spread of 100 basis points over SOFR and a 22% vol.

Using those assumptions, the deal looked about 0.44 point cheap at the midpoint of talk, a source said.

The deal looked “marginally cheap,” another source said.

However, there is nearly always unmet demand for investment-grade paper in the market, “so you can get away with a lack of cheapness that you can’t with other credit qualities,” the source said.

The convertible notes are the third IG rated offering from a utility company since last Tuesday.

While demand remained strong, the sudden influx of IG paper may drive the deal to price at the cheap end of talk, a source said.

Utility companies are traditionally known for their mandatory issuance but seem to be opting for a short-duration convertible bond structure instead.

The preference for a convertible bond, which is considered debt, as opposed to a mandatory, which is considered equity, is a story of rates and refinancing needs, sources said.

Mandatories are typically issued in connection with M&A activity.

However, refinancing and general corporate purposes drove the recent IG issuance.

As expected, the comparatively cheap financing offered by convertible debt has attracted investment-grade issuers.

Southern Co. lower

Southern Co.’s 3.875% convertible notes due 2025 continued to struggle on an outright and dollar-neutral basis their second day in the secondary space with the notes lower in heavy volume.

The 3.875% convertible notes were changing hands at 99.25 versus a stock price of $65.31 early in the session.

They continued to move lower as the session progressed and were marked at 98.625 versus a stock price of $64.28 heading into the close.

The notes contracted another 0.25 point dollar-neutral, a source said.

There was $160 million in reported volume.

Southern Co.’s stock traded to a low of $64.21 and a high of $65.58 before closing at $64.37, a decrease of 0.29%.

The 3.875% notes sank to a 99-handle and contracted 0.75 point dollar-neutral on their aftermarket debut last Friday.

PPL lower

PPL’s 2.875% convertible notes due 2028 gave back all outright gains after a strong start in the aftermarket with the notes trading firmly below par during Monday’s session.

The 2.875% notes were down 0.75 to 1 point outright as stock wavered between gains and losses.

The notes were trading in the 99.25 to 99.75 context in heavy volume.

They were changing hands at 99.5 versus a stock price of $27.58 in the late afternoon.

There was $52 million in reported volume.

PPL’s stock traded to a low of $27.51 and a high of $28.16 before closing at $27.55, off 0.51%.

The notes gained 2 points on both an outright and dollar-neutral basis on their aftermarket debut last Wednesday.

However, the notes have since come in.

onsemi gains outright

onsemi’s 0.5% convertible notes due 2029 recovered their outright losses on Monday after dropping below par on their aftermarket debut.

However, the notes were unchanged to slightly weaker on swap on the move up.

The 0.5% notes rose 1.5 points outright with stock up about 2%.

They were seen at 100.5 versus a stock price of $77.01 early in the session and were wrapped around 101 in the late afternoon, sources said.

onsemi’s stock hit a low of $76.63 and a high of $78.80 before closing at $77.73, up 1.9%.

While the 0.5% convertible notes sank below par on their aftermarket debut last Friday, they performed well on swap with the notes expanding 0.75 point dollar-neutral.

Mentioned in this article:

Alliant Energy Corp. Nasdaq: LNT

onsemi Nasdaq: ON

PPL Corp. NYSE: PPL

Southern Co. NYSE: SO

TPI Composites Inc. Nasdaq: TPIC

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