Morning Commentary: Sunnova Energy, UGI eyed

By Abigail W. Adams

Portland, Me., May 17 – The convertible primary market was active early Monday with two deals from the energy sector on deck – one from a solar company and one from a natural gas and electric utility.

Sunnova Energy International Inc., a Houston-based solar and energy storage service provider, plans to price $500 million of five-year convertible notes and UGI Corp., a Valley Forge, Pa.-based natural gas and electric utility holding company, plans to price $200 million par-of-$100 equity units after the market close on Monday.

Both deals modeled cheap based on underwriters’ assumptions.

While Sunnova was from the renewable energy field, which has been hot with investors in recent months, UGI was a better-quality credit, sources said.

Sunnova eyed

Sunnova Energy plans to price $500 million of five-year convertible notes after the market close on Monday with price talk for a coupon of 0% to 0.25% and an initial conversion premium of 30% to 35%, according to a market source.

The deal was heard to be in the market with assumptions of 425 bps over Libor and a 45% vol., a source said.

Using those assumptions, the deal looked about 1.36 points cheap at the midpoint of talk.

The credit spread was aggressive for a solar company, a source said.

“They’ve just never proven their price point,” the source said.

UGI eyed

UGI Corp. plans to price $200 million par-of-$100 equity units after the market close on Monday with price talk for a yield of 6.875% to 7.375% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

The units consist of a stock purchase contract and a 10% interest in a par-of-$1,000 series A cumulative perpetual convertible preferred stock.

The deal was heard to be in the market with assumptions of 225 bps over Libor and a 23% to 25% vol., a source said.

Using those assumptions, the deal looked about 4.19 points cheap at the midpoint of talk.

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