Starwood convertibles on tap; World Kinect notes expand on trading debut; Cerence quiet

By Abigail W. Adams

Portland, Me., June 22 – New paper was in focus on Thursday with the convertibles primary market slated to price one new offering after the market close as two new deals made their aftermarket debut.

Starwood Property Trust Inc. plans to price $350 million of four-year convertible notes after the market close on Thursday.

The deal looked cheap based on underwriters’ assumptions but will mostly appeal to outright accounts.

The new offering comes after World Kinect Corp. priced an upsized $300 million of five-year convertible notes and Cerence Inc. sold $190 million of five-year convertible notes after the market close on Wednesday.

The new paper hit the secondary space on a mixed day for equities as markets continue to digest hawkish comments from Fed officials.

Indexes wavered between gains and losses before closing the day mixed with the Dow Jones industrial average down 5 points, or 0.01%, the S&P 500 index up 0.37%, the Nasdaq Composite index up 0.95% and the Russell 2000 index down 0.80%.

There was $137 million in reported convertibles trading volume about one hour into the session and $500 million on the tape about one hour before the market close.

World Kinect’s new notes dominated activity in the secondary space with the notes up on an outright and dollar-neutral basis.

However, Cerence’s new convertible notes were quiet as stock took a hit on the heels of the overnight offering.

Starwood eyed

Starwood plans to price $350 million of four-year convertible senior notes after the market close on Thursday with price talk for a coupon of 6.25% to 6.75% and an initial conversion premium of 12.5% to 17.5%.

The deal was heard to be in the market with assumptions of 450 basis points over SOFR and a 24% vol.

The offering from the REIT looked cheap based on underwriters’ assumptions, a source said.

However, it will mostly appeal to outright accounts.

The deal played to solid demand with books closing in the early afternoon, a source said.

World Kinect expands

World Kinect priced an upsized $300 million of five-year convertible notes after the market close on Wednesday at par at the midpoint of talk with a coupon of 3.25% and an initial conversion premium of 27.5%.

Price talk was for a coupon of 3% to 3.5% and an initial conversion premium of 25% to 30%.

The greenshoe was also upsized to $50 million.

The initial size of the offering was $250 million with a greenshoe of $37.5 million.

The new paper dominated activity in the secondary space and made strong gains on an outright and dollar-neutral basis.

The notes were changing hands at 101.125 versus a stock price of $22.30 early in the session.

They were trading at 101.325 versus a stock price of $22.58 in the late afternoon.

They expanded about 1 point dollar-neutral, a source said.

There was $107 million in reported volume.

World Kinect’s stock traded to a low of $22.22 and a high of $22.77 before closing at $22.63, up 1.48%.

Cerence refinances

In a wall-crossed, overnight offering, Cerence priced $190 million of five-year convertible notes after the market close on Wednesday at par at the midpoint of talk with a coupon of 1.5% and an initial conversion premium of 22.5%.

Price talk was for a coupon of 1.25% to 1.75% and an initial conversion premium of 20% to 25%.

The deal came as a refinancing with the company repurchasing $87.5 million in principal of its 3% convertible notes due 2025 for $102 million in cash in privately negotiated transactions.

While the offering looked cheap, its true value came in the kiss for holders of the 3% notes, which were bought back at 116.383.

The notes were taken out at a 2.5-point to 3-point premium to their previous trading level.

“It was a nice kiss because holders had to take the stock risk with the new ones,” a source said.

Cerence’s 1.5% notes were not active on the tape as stock plunged on the heels of the overnight offering.

Cerence’s new offering had priced in an 8% stock drop; stock was off more than 13% during Thursday’s session.

While the new 1.5% notes were not active in the secondary, they were believed to be marked around par, sources said.

Cerence’s stock traded to a low of $28.46 and a high of $31.10 before closing at $28.72, a decrease of 13.58%.

Mentioned in this article:

Cerence Inc. Nasdaq: CRNC

Starwood Property Trust Inc. NYSE: STWD

World Kinect Corp. NYSE: WKC

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