PG&E on deck; T-Mobile eyed; American Airlines contracts; Livent below par; Zscaler, PagerDuty expand

By Abigail W. Adams

Portland, Me., June 23 – The convertibles primary market resumed its record setting pace with a $3.2 billion offering set to price after the market close on Tuesday, a $1.5 billion offering on deck for after the market close on Thursday and $2.475 billion over four deals pricing late Monday.

PG&E Corp. plans to price $1.5 billion in $100-par three-year equity units after the market close on Thursday.

The financing is part of the utility company’s exit from bankruptcy and is expected to appeal to crossover investors, a source said.

The 2020 Cash Mandatory Exchangeable Trust plans to price up to $3.2 billion three-year cash-settled mandatory securities tied to T-Mobile US, Inc. after the market close on Tuesday.

The deal is part of SoftBank Group Corp.’s effort to monetize its holding in T-Mobile and is structured similarly to SoftBank’s previous mandatory exchangeable linked to Alibaba Group Holding Ltd.

The deal was in demand during bookbuilding and oversubscribed at the midpoint of talk, a source said.

As market players eyed the large mandatory offerings in the pipeline, new paper from Zscaler Inc., American Airlines Group Inc., PagerDuty Inc. and Livent Corp. made its aftermarket debut.

The new paper had mixed performances with Zscaler and PagerDuty expanding, American Airlines contracting and Livent trading well below par on an outright basis.

PG&E on deck

PG&E plans to price $1.5 billion in $100-par three-year equity units after the market close on Thursday.

Price talk is for a dividend of 5.5% to 6% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

The units will consist of a prepaid forward stock purchase contract and a zero-coupon U.S. treasury strip.

Concurrently with the equity units, the company will price a $4 billion common stock offering.

The financing is to support the company’s reorganization plan in its exit from bankruptcy.

The equity units are expected to appeal to crossover investors.

T-Mobile eyed

The 2020 Cash Mandatory Exchangeable Trust plans to price up to $3.2 billion $1,000-par three-year cash-settled mandatory securities tied to T-Mobile after the market close on Tuesday with price talk for a dividend of 5.25% to 5.75% and a threshold appreciation premium of 17.5% to 22.5%.

The deal was heard to be marketed with a credit spread of Libor flat and a 27% vol. to 30% vol. skew, a source said.

Using those assumptions, the deal looked about 6 points cheap at the midpoint of talk.

Proceeds will be used, in part, to purchase U.S. Treasury securities, which will be held in escrow to fund the quarterly dividend payments of the mandatory securities.

With the coupon stream collateralized, there is no credit exposure to the company, a source said.

Proceeds from the exchangeable trust offering will go to SoftBank with the securities part of SoftBank’s efforts to monetize a portion of its stake in T-Mobile.

The offering is a Rule 144A deal, which is rare for mandatories, a market source said.

However, the deal was structured similarly to SoftBank’s mandatories tied to Alibaba.

“It’s an efficient structure and it enables companies to get a better rate,” a market source said.

The deal played to heavy demand, particularly from outright accounts, and was oversubscribed at the mid-point of talk, a source said.

Concurrently with the trust securities, T-Mobile is pricing a secondary offering of 133,548,303 shares.

There was also heavy demand for the secondary offering.

Investors are incredibly receptive to the T-Mobile story, particularly since its merger with Sprint, the source said.

As the primary market prepped the massive offering, T-Mobile stock hit an all-time high.

Stock traded up to $110.46 in intraday trading before closing the day at $107.16, an increase of 0.53%.

Due to the stock’s performance on Tuesday and the demand seen during bookbuilding, the secondary offering is expected to price tight, a source said.

Zscaler expands

Zscaler priced $1 billion of five-year convertible notes after the market close on Monday at par at the rich end of talk with a coupon of 0.125% and an initial conversion premium of 37.5%.

Price talk was for a coupon of 0.125% to 0.625% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

The 0.125% convertible notes were making large gains on an outright and dollar-neutral basis.

The notes were changing hands on a 102-handle throughout Tuesday’s session, sources said.

The notes expanded as much as 3 points dollar-neutral in intraday trading. However, they started “leaking” in the afternoon, a source said.

While the notes were trading off their highs, they were still up about 2.25 points dollar-neutral in the late afternoon.

The notes were active with more than $200 million in reported volume shortly before the market close.

Zscaler stock traded to a low of $107.71 and a high of $112.00 before closing the day at $110.31, an increase of 0.58%.

American Airlines contracts

American Airlines priced an upsized $1 billion of five-year convertible notes after the market close on Monday at par with a coupon of 6.5% and an initial conversion premium of 20%.

Pricing came at the cheap end of talk for a coupon of 6% to 6.5% and at the midpoint of talk for an initial conversion premium of 17.5% to 22.5%, according to a market source.

The greenshoe was also upsized to $150 million.

The initial size of the offering was $750 million with a greenshoe of $112.5 million.

Concurrently with the convertible notes, the company priced an upsized secondary common stock offering of $1 billion, or74.1 million shares, at $13.50 per share.

American Airlines’ 6.5% notes dominated activity in the secondary space. However, they were contracting on debut.

The notes traded as low as 97 in intraday activity but rebounded heading into the market close.

They were seen changing hands at 99.25 versus a stock price of $14.14 shortly before the market close, a source said.

While trading off their lows on an outright basis, the notes were contracted as much as 4 points dollar-neutral.

However, for those that were able to sell stock at Monday’s close, the notes were expanded about 2 points, another source said.

However, the borrow on the stock was tight – a problem that is expected to be alleviated once the secondary offering settles.

The increased supply due to the $250 million upsize contributed to the poor performance of the notes, a source said.

“They couldn’t place them with people that would hold them,” a source said.

The bonds saw more than $285 million in reported volume shortly before the market close.

American Airlines stock traded to a high of $14.29 and a low of $13.71 before closing the day at $14.00, a decrease of 6.17%.

PagerDuty trades up

PagerDuty sold $250 million of five-year convertible notes after the market close on Monday at par with a coupon of 1.25% and an initial conversion premium of 30%.

Pricing came at the rich end of talk for a coupon of 1.25% to 1.75% and at the midpoint of talk for an initial conversion premium of 27.5% to 32.5%, according to a market source.

The notes were putting in a strong performance in the secondary space.

They traded up to 103 with stock down about 1% early in the session, according to a market source.

While the notes came in as stock continued to trade off into the afternoon, they continued to hold on an outright basis.

They were seen changing hands around 102 in the mid-afternoon and were expanded about 3 points dollar-neutral.

The bonds saw $79 million in reported volume heading into the market close.

PagerDuty stock traded to a low of $28.78 and a high of $31.32 before closing the day at $29.39, a decrease of 4.67%.

Livent below par

Livent priced $225 million of five-year convertible notes after the market close on Monday at par at the cheap end of talk with a coupon of 4.125% and an initial conversion premium of 35%.

Price talk was for a coupon of 3.625% to 4.125% and an initial conversion premium of 35% to 40%.

The new paper had a lackluster reception in the secondary space.

The notes traded as low as 95 in intraday activity and were changing hands at 96.265 heading into the market close.

However, they held up relatively well on a dollar-neutral basis with the notes flat to contracted about 0.5 point, a source said.

Livent stock traded to a low of $5.80 and a high of $6.49 before closing the day at $5.95, a decrease of 7.89%.

Mentioned in this article:

American Airlines Group Inc. Nasdaq: AAL

Livent Corp. NYSE: LTHM

PagerDuty Inc. NYSE: PD

PG&E Corp. NYSE: PCG

T-Mobile US Inc. Nasdaq: TMUS

Zscaler Inc. Nasdaq: ZS

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