Convertibles primary awakens; Liberty Broadband notes in demand; PPL tightens talk

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. is on deck with a $1.1 billion offering 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 (Baa1/BBB+).

The deals launched on an ugly day for risk assets; however, demand for new paper remained strong with Liberty oversubscribed and PPL tightening talk, sources said.

While the primary market has been slow since the start of the year, the pickup in new issuance the market has expected is still believed to be on its way, despite the heaviness of Tuesday’s session, sources said.

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

While new paper was in demand in the primary market, the secondary space was heavy as Russia’s suspension of observation of its nuclear treaty with the U.S. sparked a sell-off that had been brewing due to concern about the Federal Reserve.

The Dow Jones industrial average closed Tuesday down 697 points, or 2.06%, the S&P 500 index closed down 2%, the Nasdaq Composite index closed down 2.50% and the Russell 2000 index closed down 2.99%.

Trading activity was light with $441 million on the tape shortly before the market close.

However, the market was heavy with most names contracting about 0.5 point dollar-neutral, a source said.

There were large blocks of tech paper that were trading into the bid “just to move them,” a source said, with liquidity a growing concern.

indie Semiconductor Inc.’s 4.5% convertible notes due 2027, a small, off-the-run issue, was a top trader on Tuesday although with little change in price.

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 offering played to strong demand with the deal heard to be well oversubscribed.

The notes are believed to be pricing with a coupon of 3.125%, the cheap end of yield talk, and an initial exchange premium of 40%, the midpoint of premium talk.

There was strong cross-over from existing holders and demand from outright accounts.

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 2.75% and 1.25% notes are putable on Oct. 5, 2023.

However, Liberty initiated a tender offer for the notes with a par purchase price, which is scheduled to settle on Feb. 28.

The tender offer boosted Liberty’s outstanding exchangeable notes.

The 2.75% exchangeables jumped 1 point outright to trade just shy of par.

The 1.25% exchangeables jumped 2.5 points outright to also trade just shy of par.

While the trading levels were a surprise to some sources given the low yield, the quick turnaround time of the tender offer made them an attractive trade.

Holders of the outstanding exchangeables “got rewarded,” a source said.

PPL tightens talk

PPL’s offering of $900 million five-year exchangeable notes (Baa1/BBB+) played to strong demand during bookbuilding with talk tightening.

Revised talk is for a coupon of 2.875% to 3.125% and an initial exchange premium of 22.5%, according to a market source.

Initial talk was 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.

The notes will be rated investment grade, which was driving demand.

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

“That is really good,” a source said.

The convertibles primary market has been hoping for a resurgence of issuance from investment-grade companies.

indie active

indie Semiconductor’s 4.5% convertible notes due 2027 were among the top traded issues in the secondary space although with little change in price.

The notes were changing hands at 141.25 versus a stock price of $10.17 in the late afternoon, a source said.

There was $11 million in reported volume.

indie’s stock traded to a low of $9.88 and a high of $10.20 before closing the day at $10.01, a decrease of 1.38%.

Earnings sparked activity in the 4.5% notes, which is a small, off-the-run issue of $160 million.

indie announced mixed earnings post-close on Friday with losses per share of 10 cents versus the 9 cents expected on revenue of $33.03 million versus the $32.92 million expected.

Mentioned in this article:

Charter Communications Inc. Nasdaq: CHTR

indie Semiconductor Inc. Nasdaq: INDI

PPL Corp. NYSE: PPL

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