PG&E mandatories in demand; Xeris Pharmaceuticals stock tanks on convertibles offering

By Abigail W. Adams

Portland, Me., June 25 – The convertibles primary market stood poised to round out another high-volume week with two offerings on deck.

Xeris Pharmaceuticals, Inc. plans to price $60 million of five-year convertible notes in a registered offering, which coincides with a $20 million common stock offering.

However, stock was nearly cut in half during Thursday’s session, leading some to question whether the offering would be completed.

After a two-day marketing period, PG&E Corp.’s $1.5 billion offering of $100-par three-year equity units is also slated to price after the market close.

The deal was heard to be in demand with books closing in the early afternoon.

The primary market activity comes on another weak day for the market with equities volatile on the heels of greater-than-expected unemployment numbers and a resurgence in Covid-19 cases.

American Airlines Group Inc.’s 6.5% convertible notes due 2025 were volatile on Thursday with the notes continuing their downward trajectory early in the session but staging an impressive rebound into the close.

While volume was light, Livent Corp.’s recently priced 4.125% convertible notes due 2025 continued to struggle in the aftermarket.

After a stellar secondary market debut in early June, Royal Caribbean Cruises Ltd.’s 4.25% convertible notes due 2023 continued to sink well below par on Thursday.

Novavax Inc.’s 3.75% convertible notes due 2023 continued to improve as stock ripped as the company works to develop a Covid-19 vaccine.

Xeris stock ‘destroyed’

Xeris Pharmaceuticals planned to price $60 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 4.5% to 5% and an initial conversion premium of 12.5% to 17.5%, according to a market source.

Concurrently, the company planned to price a $20 million offering of stock.

While the small deal was not on the radar of sources queried, Xeris stock got “destroyed” following the announced offering, a source said.

Stock was nearly cut in half on Thursday and closed the day at $2.72, a decrease of 48.78%.

With the current stock price, the company’s market cap is $102.24 million.

The stock performance led some to question whether the company would be able to complete the offering.

PG&E eyed

After a multi-day marketing period, PG&E’s $1.5 billion $100-par three-year equity units are set to price after the market close on Thursday.

The units, which consist of a prepaid forward stock purchase contract and a zero-coupon U.S. treasury strip, are talked with a dividend of 5.5% to 6% and a threshold appreciation premium of 17.5% to 22.5%.

The deal was heard to be marketed with assumptions of Libor flat and a 27% to 30% vol. skew., which looked 7.625 points cheap at the midpoint of talk, a source said.

Much like the T-Mobile mandatory, the deal was most likely structured so treasuries covered the cost of the dividend payments to prevent any credit exposure to the company, the source said.

The deal is pricing concurrently with a $4 billion common stock offering.

The deal was heard to be in demand with books closing in the early afternoon.

American Airlines volatile

American Airlines’ 6.5% convertible notes due 2025 were volatile on Thursday with the notes continuing to trade off for the majority of the session but rallying into the market close.

The 6.5% notes traded as low as 87 on Thursday, a source said.

However, they traded off their lows and were changing hands at 89.75 versus a stock price of $12.56 in the late afternoon, a source said.

The notes continued to rally as stock jumped into positive territory in the final minutes of Thursday’s session and closed the day at 93.5.

The notes remained the most actively traded convertible bond in the secondary space with more than $50 million in reported volume.

American Airlines stock traded to a low of $12.18 and a high of $13.24 before closing the day at $13.17, an increase of 1%.

Livent struggles

While volume was light, Livent’s 4.125% convertible notes due 2025 continued to struggle in the secondary space.

The 4.125% notes traded as low as 96.875 on Thursday.

Livent’s stock traded to a high of $6.21 and a low of $5.86 before closing the day at $5.93, a decrease of 4.51%.

Royal Caribbean sinks

After a blockbuster secondary market debut, Royal Caribbean’s 4.25% convertible notes continued their downward trajectory on Thursday.

The notes sank down to a 90 handle in active trading, a market source said.

They were above par at the close of last week.

Royal Caribbean stock traded to a low of $45.25 and a high of $49.19 before closing the day at $48.58, an increase of 0.7%.

The 4.25% notes traded as high as 125 on their secondary market debut.

However, the convertible notes have taken a hit as negative headlines for the cruise line operator mount.

The company recently announced that it was delaying operations until September and that its Spanish cruise line filed for reorganization under Spanish insolvency laws.

Cruise lines and airlines have been among the hardest hit in the sell-off sparked by concern over a resurgence in Covid-19 cases.

Novavax improves

Novavax’s 3.75% convertible notes due 2023 continued to improve on Thursday.

The notes traded up another 2 points outright to 95.75 with about $15 million in reported volume heading into the close, a market source said.

Novavax stock continued to rip on Thursday with the company one of the contenders in the race to develop a Covid-19 vaccine.

Stock traded to a low of $80.04 and a high of $86.50 before closing the day at $83.54, an increase of 7.79%.

Novavax’s convertible notes also gained more than 2 points on Wednesday as stock shot up more than 13%.

While stock has soared, the convertible notes still have a high premium and move on a low delta.

Mentioned in this article:

American Airlines Group Inc. Nasdaq: AAL

Livent Corp. NYSE: LTHM

PG&E Corp. NYSE: PCG

Royal Caribbean Cruises Ltd. NYSE: RCL

Xeris Pharmaceuticals, Inc. Nasdaq: XERS

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