Morning Commentary: Federal Realty exchangeable notes price, rise on debut

By Abigail W. Adams

Portland, Me., Jan. 9 – The convertibles secondary space saw an active start to the day as the first new paper of the week made its aftermarket debut.

Federal Realty OP LP priced an upsized $425 million of five-year notes exchangeable for Federal Realty Investment Trust’s stock (expected Baa1/BBB+) after the market close on Monday at par with a coupon of 3.25% and an initial exchange premium of 20%.

Pricing came at the rich end of price talk for a coupon of 3.25% to 3.75% and at the cheap end of talk for an initial exchange premium of 20% to 25%.

The deal did not scream cheap, sources said.

However, it played to strong demand with the offering well oversubscribed and the notes putting in a solid performance on their aftermarket debut.

“There’s still a need for IG,” a source said.

The new paper hit the secondary space on a red open for equity markets with indexes giving back some of their strong gains from the previous session.

The Dow Jones industrial average was down 264 points, or 0.70%, the S&P 500 index was down 0.40%, the Nasdaq Composite index was down 0.38% and the Russell 2000 index was down 1.35% shortly before 11 a.m. ET.

While a soft open for equities, the convertibles secondary space was stable with Federal Realty’s new paper dominating activity.

The notes were wrapped around 100.375 early in the session with stock off slightly.

They expanded about 0.25 point on a dollar-neutral, or hedged, basis, a source said.

Federal Realty’s stock was down $101.70, a decrease of 0.60%, shortly before 11 a.m. ET.

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