Morning Commentary: Convertibles primary awakens; Liberty Broadband, PPL on deck

By Abigail W. Adams

Portland, Me., Feb. 21 – The convertibles primary market launched the holiday-shortened week with the pipeline sources had been hoping for.

Two deals totaling $2 billion are slated to price after the market close on Tuesday.

Liberty Broadband Corp. plans to price $1.1 billion of exchangeable notes due 2053 for Charter Communications Inc. class A common stock and PPL Capital Funding Inc., a subsidiary of PPL Corp., plans to price $900 million of five-year exchangeable notes after the market close on Tuesday.

The offerings are coming as refinancings with PPL an investment-grade company using proceeds to take out its straight debt.

While the primary market has been slow since the start of the year, the pickup in new issuance the market has expected is on its way, sources said.

“The pipeline is filling up,” a source said.

Liberty’s exchangeables

Liberty Broadband plans to price $1.1 billion of exchangeable notes due 2053 for Charter class A common stock after the market close on Tuesday with price talk for a coupon of 2.625% to 3.125% and an initial exchange premium of 37.5% to 42.5%.

The deal was heard to be in the market with assumptions of a 262.5 basis points credit spread and a 33% vol. with Liberty’s credit backing the deal.

The deal is coming as a refinancing with proceeds to be used to repurchase all outstanding of Grizzly Merger Sub 1 LLC’s 1.75% exchangeable senior debentures due 2046, Liberty Broadband’s 2.75% exchangeable notes due 2050 and 1.25% exchangeable notes due 2050.

The offering boosted Liberty’s outstanding exchangeable notes.

The 2.75% exchangeables, which are putable on Oct. 5, 2023, jumped 1 point outright to trade just shy of par early Tuesday.

The 1.25% exchangeables, which are putable on Oct. 5, 2023, jumped 2.5 points outright to also trade just shy of par early Tuesday.

The trading levels were a surprise to some sources, given the low yield the notes were offering.

“That’s a little bit of a puzzle,” a source said.

PPL eyed

PPL Capital Funding, a subsidiary of PPL Corp., plans to price $900 million of five-year notes exchangeable for PPL stock after the market close on Tuesday with price talk for a coupon of 3% to 3.5% and an initial exchange premium of 20% to 25%.

The deal was heard to be in the market with assumptions of a 125 bps credit spread and a 21% vol., a source said.

Using those assumptions, the deal looked about 1.25 points cheap at the midpoint of talk.

PPL is an investment-grade rated company that is tapping to the convertibles market to refinance its short-term straight debt.

“That is really good,” a source said.

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