Royal Caribbean convertibles skyrocket on debut; cruise lines in focus; Varex upsizes

By Abigail W. Adams

Portland, Me., June 5 – The convertibles primary market rounded out an active week with two deals totaling $1.175 billion pricing.

Royal Caribbean Cruises Ltd. priced $1 billion of three-year convertible notes and Varex Imaging Corp. sold an upsized $175 million of five-year convertible notes after the market close on Thursday.

The two offerings brought the weekly tally to $4.9 billion, which priced over six deals. Three of those deals were sized at $1 billion or above.

While new deal activity has been expected to slow down, the primary market has defied expectations.

The coming week is not expected to be as active as the previous weeks. However, deals remain in the pipeline, sources said.

Meanwhile, Royal Caribbean’s and Varex’s new paper hit the secondary space on a strong day for equities as stocks surged following a surprise decline in the U.S. unemployment rate in May.

Royal Caribbean’s new paper dominated activity in the secondary space with the notes skyrocketing on an outright and dollar-neutral basis.

Cruise lines, in general, skyrocketed on Friday with Norwegian Cruise Line Holdings Ltd.’s 6% exchangeable notes due 2024 and Carnival Corp.’s 5.75% convertible notes due 2023 gaining double digits on an outright basis.

New paper from Varex was also trading up on debut.

Royal Caribbean surges

Royal Caribbean priced $1 billion of three-year convertible notes after the market close on Thursday at par with a coupon of 4.25% and an initial conversion premium of 25%.

Pricing came at the rich end of tightened talk for a coupon of 4.25% to 4.5% and in line with talk for a fixed initial conversion premium of 25%, according to a market source.

Initial price talk was for a coupon of 5% to 5.5% and an initial conversion premium of 20% to 25%.

The deal was heard to have played to massive demand.

The demand followed the notes into the secondary space.

Royal Caribbean’s 4.25% notes dominated activity on Friday.

The notes were up 13 points outright early in the session with stock up more than 15%.

They continued to gain as the session progressed. The notes traded as high as 121 before closing the day at 119.

The 4.25% notes were up more than 6 points dollar-neutral in intraday trading, a source said.

Royal Caribbean stock traded to a low of $64.60 and a high of $74.59 before closing the day at $69.44, an increase of 20.35%.

Cruise lines gain

The convertible notes of other cruise line operators were also skyrocketing on Friday as their equities ripped.

Norwegian Cruise Line’s 6% exchangeable notes due 2024 gained more than 25 points outright in active trading.

The notes were changing hands around 186.625 in the late afternoon, according to a market source.

Norwegian Cruise stock traded to a low of $21.60 and a high of $24.29 before closing the day at $22.43, an increase of 14.56%.

Carnival’s 5.75% convertible notes due 2023 broke double par on Friday.

The notes rose more than 30 points outright and were changing hands at 221.5 in the late afternoon, a source said.

Carnival stock traded to a low of $21.06 and a high of $22.94 before closing the day at $21.51, an increase of 16.33%.

The leisure industry as a whole was experiencing strong tailwinds on optimism over the reopening of the economy, sources said.

Varex upsizes

Varex Imaging priced an upsized $175 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% and an initial conversion premium of 25%.

Price talk was for a coupon of 3.5% to 4% and an initial conversion premium of 25% to 30%, according to market sources.

The greenshoe was also upsized to $25 million.

The initial size of the deal was $150 million with a greenshoe of $22.5 million.

The 4% notes were wrapped around par in light volume early Friday with stock up more than 3%.

However, the notes improved as the session progressed with the bonds up about 1 point in the mid-afternoon, a source said.

Varex stock traded to a low of $16.76 and a high of $17.93 before closing the day at $17.68, an increase of 6.19%.

Mentioned in this article:

Carnival Corp. NYSE: CCL

Norwegian Cruise Line Holdings Ltd. NYSE: NCLH

Palo Alto Networks Inc. NYSE: PANW

Royal Caribbean Cruises Ltd. NYSE: RCL

Varex Imaging Corp. Nasdaq: VREX

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