Morning Commentary: Rocket Lab convertibles rocket on debut; Barclays synthetic gains

By Abigail W. Adams

Portland, Me., Feb. 2 – The convertibles primary market capped a relatively active week with two deals pricing.

Rocket Lab USA Inc. priced an upsized $300 million of five-year convertible notes and Barclays Bank plc priced $250 million of five-year cash-settled equity-linked notes tied to Microsoft Corp. after the market close on Thursday.

The new deal activity lifted the weekly tally to $900 million, which priced in three deals.

While the primary market has operated at a steady pace throughout January, issuance has paled in comparison to the stampede seen in high-yield and investment-grade markets.

However, the primary is active behind the scenes, sources say, with the pace of issuance expected to accelerate in coming weeks.

The new paper hit the secondary space as the latest U.S. unemployment figures rattled markets.

Equity indexes were mixed while Treasuries were hit with heavy selling on the heels of the latest U.S. nonfarm payrolls report, which saw a surge in hiring and wage growth.

The strong numbers were a further blow to markets hopeful for sooner-rather-than-later rate cuts.

The 10-year Treasury yield climbed 15 basis points to again shoot above the 4% threshold and trade at 4.029% shortly before 11 a.m. ET.

The Dow Jones industrial average was down 26 points, or 0.07%, the S&P 500 index was up 0.61%, the Nasdaq Composite index was up 1.14% and the Russell 2000 index was down 1.22% shortly before 11 a.m. ET.

However, new paper was in focus in the secondary space with both Rocket Lab’s and Barclays’ new notes putting in strong aftermarket debuts.

Rocket Lab rockets higher

Rocket Lab priced an upsized $300 million of five-year convertible notes after the market close on Thursday at par at the cheap end of talk with a coupon of 4.25% and an initial conversion premium of 27.5%.

Price talk was for a coupon of 3.75% to 4.25% and an initial conversion premium of 27.5% to 32.5%.

The greenshoe was also upsized to $55 million.

The initial size of the offering was $275 million with a $41.25 million greenshoe.

The new paper rocketed higher in the aftermarket, trading up on an outright and dollar-neutral basis on a red open for stock.

The notes expanded 3 points dollar-neutral, sources said.

Rocket Lab’s stock was trading at $3.98, a decrease of 0.87%, shortly before 11 a.m. ET.

Barclays trades up

Barclays priced $250 million of five-year cash-settled equity-linked notes tied to Microsoft after the market close on Thursday at par with a coupon of 1% and an initial conversion premium of 22.78%, according to a market source.

Pricing came in line with talk for an issue price of par and a coupon of 1% and cheaper than talk for an initial conversion premium of 30%.

The new paper was performing well in the aftermarket and marked at 100.5 bid, 101.5 offered early in the session.

Microsoft’s stock was trading at $408.43, an increase of 1.15%, shortly before 11 a.m. ET.

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