PPL, Liberty exchangeables price; PPL notes skyrocket; Liberty flat; Palo Alto active

By Abigail W. Adams

Portland, Me., Feb. 22 – It was an active day in the convertibles secondary space as $2 billion in new supply made its aftermarket debut.

PPL Capital Funding Inc., a subsidiary of PPL Corp., priced $900 million of five-year exchangeable notes (Baa1/BBB+) and Liberty Broadband Corp. priced $1.1 billion of senior debentures due 2053 exchangeable for Charter Communications Inc. class A common stock after the market close on Tuesday.

The new paper hit the secondary space on a volatile day for equities with indexes gyrating between gains and losses as the market digested the latest Federal Open Market Committee minute notes.

Equity indexes opened strong, dipped into the red in early trading, pushed into positive territory mid-session, briefly surged following the minute notes release and fell back into the red before closing mixed.

The Dow Jones industrial average closed Wednesday down 85 points, or 0.26%, the S&P 500 index closed down 0.16%, the Nasdaq Composite index closed up 0.13% and the Russell 2000 index closed up 0.34%.

While there remained an overhang in the broader market following the heavy selling on Tuesday, new paper was in focus on Wednesday with the deals to price putting in mixed performances.

There was $718 million in reported volume about one hour before the market close with PPL and Liberty Broadband’s exchangeables accounting for nearly one-half of the volume in the space.

New paper from PPL jumped on an outright and dollar-neutral basis while Liberty fell flat on debut.

Outside of the new paper, earnings-related news continued to drive activity in the secondary space with Palo Alto Networks Inc.’s deep-in-the-money convertible notes gaining alongside stock in heavy volume after an earnings beat.

PPL in demand

PPL priced $900 million of five-year exchangeable notes after the market close on Tuesday at par with a coupon of 2.875% and an initial exchange premium of 22.5%.

Pricing came at the rich end of tightened talk for a coupon of 2.875% to 3.125% and in line with talk for an initial exchange premium of 22.5%, according to a market source.

Initial price talk was for a coupon of 3% to 3.5% and an initial exchange premium of 20% to 25%.

The investment-grade-rated notes played to heavy demand during book building with the offering more than 4x oversubscribed, a source said.

The strong demand followed the new paper into the secondary space with the notes jumping on an outright and dollar-neutral basis.

The notes were changing hands at 102.125 versus a stock price of $28.07 early in the session, according to a market source.

They came in alongside stock and were trading at 101.375 versus a stock price of $27.79 in the late afternoon.

The notes expanded about 2 points dollar-neutral, a source said.

PPL’s stock traded to a high of $28.12 and a low of $27.60 before closing at $27.71, a decrease of 0.36%.

Liberty flat

Liberty Broadband priced $1.1 billion of senior debentures due 2053 exchangeable for Charter class A common stock after the market close on Tuesday at par with a coupon of 3.125% and an initial exchange premium of 40%.

Pricing came at the cheap end of talk for a coupon of 2.625% to 3.125% and at the midpoint of talk for an initial exchange premium of 37.5% to 42.5%.

The deal played to strong demand during book building.

However, the notes fell flat in the aftermarket.

They were trading at 100.25 versus a stock price of $380.67 early in the session, according to a market source.

The notes were changing hands at 100.125 versus a stock price of $382.54 in the late afternoon.

Charter’s stock traded to a low of $375.68 and a high of $385.38 before closing at $382.65, an increase of 1.25%.

Demand for the new paper was largely driven by holders of the outstanding notes the company is tendering for, a source said.

Proceeds from the offering will be used to repurchase all the outstanding Grizzly Merger Sub 1 LLC 1.75% exchangeable senior debentures due 2046, Liberty Broadband’s 2.75% convertible notes due 2050 and 1.25% convertible notes due 2050 and for general corporate purposes.

The company is tendering for the notes with a par purchase price. The tender is expected to settle on Feb. 28.

The tender “was the kiss more so than the new deal,” a source said.

Palo Alto’s earnings

Palo Alto’s convertible notes jumped alongside stock in heavy volume on Wednesday following an earnings beat.

The 0.375% convertible notes due 2025 gained 13 points outright with stock up 11%.

The notes were changing hands at 189.125 versus a stock price of $187.47 in the late afternoon, according to a market source.

There was $30 million in reported volume.

While less active, Palo Alto’s soon-to-mature 0.75% convertible notes due July 1, 2023 jumped 18 points outright.

The notes were seen at 207.5 versus a stock price of $184.80 in the late afternoon.

There was about $6.5 million in reported volume.

Palo Alto’s stock traded to a low of $182.30 and a high of $188.79 before closing at $187.75, up 12.50%.

Stock jumped after the cyber-security company bested analyst expectations with earnings per share of $1.05 versus the 78 cents anticipated on revenue of $1.66 billion versus the $1.65 billion anticipated.

The company also upped its forward guidance and is now expecting earnings per share of $3.97 to $4.03 for the fiscal year on revenue of $6.85 billion to $6.91 billion.

Analysts had expected earnings per share of $3.42 on revenue of $6.89 billion.

Mentioned in this article:

Charter Communications Inc. Nasdaq: CHTR

Palo Alto Networks Inc. Nasdaq: PANW

PPL Corp. NYSE: PPL

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