Atlas jumps on acquisition offer; Atlas Air attractive on takeout; Royal Caribbean up

By Abigail W. Adams

Portland, Me., Aug. 5 – It was a relatively quiet end to a busy week in the convertibles secondary space with $1.575 billion pricing over three deals during the week and acquisition announcements and earnings sparking activity in outstanding issues.

Equity indexes were mixed as Treasury yields skyrocketed following the release of the latest U.S. non-farm payrolls report, which blew past expectations.

Job growth in July was double expectations with unemployment at a half-century low.

While the report sparked a rush of pre-market selling, buyers stepped in soon after the opening bell, pushing some indexes well off the lows of the day and others into positive territory.

The Dow Jones industrial average closed Friday up 77 points, or 0.23%, the S&P 500 index closed down 0.16%, the Nasdaq Composite index closed down 0.50%, and the Russell 2000 index closed up 0.81%.

While equities were mixed as market players revamped their recession forecasts, Treasuries sold off as the market once again adjusted its expectations for the Federal Reserve’s rate hike schedule.

However, the yield curve remained inverted amid the sell-off.

The convertibles secondary space stood firm in the face of the volatility in other asset classes with the tone markedly improved, especially with the strong performance of recent issues.

Royal Caribbean Group’s newly priced 6% convertible notes due 2025 continued to add on an outright basis with the notes making strong outright and dollar-neutral gains since pricing.

Acquisition news also sparked outsized gains in some outstanding issues.

Atlas Corp.’s 3.75% exchangeable notes due 2025, issued by Seaspan Corp., skyrocketed outright following news the company had received a take private bid.

While activity in the name died down, Atlas Air Worldwide Holdings Inc.’s 1.875% convertible notes due 2024 continued to trade at attractive levels with the notes poised to be winners following the company’s acquisition.

Royal Caribbean adds to gains

Royal Caribbean’s 6% convertible notes due 2025 continued to add to its gains on Friday with the notes’ strong performance providing some relief to a brutal first half of 2022.

The 6% notes rose another 1 point outright with the notes trading on a 110-handle heading into the market close.

Royal Caribbean’s stock traded to a high of $40.96 and a low of $38.36 before closing the day at $39.67, an increase of 0.56%.

The notes have made strong gains on an outright and dollar-neutral basis since pricing at par post-close Monday.

The notes expanded about 6 points dollar-neutral since pricing, a source said.

Royal Caribbean reopened the primary market after a month of inactivity with its $1 billion offering.

The positive reception to the notes during bookbuilding and their strong performance in the aftermarket have wetted both investor and issuer appetite for the convertibles market, sources said.

Atlas’ acquisition

Atlas Corp. became the latest convertibles issuer to become the subject of acquisition interest with the global asset management firm announcing that it had received a nonbinding proposal to be taken private at a price of $14.45 per share.

The news sent the 3.75% exchangeable notes due 2025, issued by Seaspan, skyrocketing although trading in the issue was limited.

The 3.75% notes jumped 10 points outright to 117.

Atlas’ stock also jumped double digits, trading to a high of $14.37 and a low of $14.20 before closing the day at $14.22, an increase of 22.90%.

News broke post-close on Thursday that a consortium of private equity investors, including board chair David L. Sokol, Fairfax Financial Holdings Ltd., the Washington Family and the Ocean Network Express Pte. Ltd., has proposed to purchase all outstanding shares not currently owned at a price of $14.45.

While a boost for noteholders, the issue is small and illiquid, a source said.

Atlas priced a $201.25 million issue of the notes at par in December 2020.

Atlas Air’s acquisition

Activity in Atlas Air’s 1.875% convertible notes due 2024 simmered down on Friday.

However, the notes continued to trade at attractive levels given their pending takeout.

The 1.875% convertible notes remained wrapped around 165.5 on Friday, a level they jumped to the previous session on news a consortium of private equity firms led by Apollo would take the company private.

Atlas Air’s stock traded to a high of $99.84 and a low of $99.30 before closing the day at $99.65, a decrease of 0.10%.

While pulling back on Friday, stock has gained about 33% and the convertible notes have jumped more than 30 points outright since Monday when takeout chatter circulated the market.

The deal was officially announced before the market open on Thursday.

Atlas announced that an investor group led by Apollo would acquire the airline for $102.50 per share for a total enterprise value of $5.2 billion.

The notes were poised to win in the takeout matrix at a price greater than $100 per share, a source previously said.

The notes still look attractive at their current level, another source said.

Mentioned in this article:

Atlas Air Worldwide Holdings Inc. Nasdaq: AAWW

Atlas Corp. NYSE: ATCO

Royal Caribbean Group NYSE: RCL

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