Morning Commentary: Kite Realty, South Jersey Industries on tap; Ford hits aftermarket

By Abigail W. Adams

Portland, Me., March 17 – New deal activity continued at a rapid pace in the convertibles market with three deals totaling $475 million on deck for after the market close and five deals totaling $3.01 billion making their aftermarket debut.

Kite Realty Group Trust plans to price $175 million of six-year exchangeable notes and South Jersey Industries Inc. plans to sell an offering of $300 million, or 6 million $50-par equity units, after the market close on Wednesday.

Meanwhile, new paper from Ford Motor Co., Rapid7 Inc., IMAX Corp., Centennial Resource Development Inc. and Oil States International Inc. priced.

While new paper from Rapid7 and IMAX was strong on debut, Ford was lagging its issue price.

Kite Realty eyed

Kite Realty plans to price $175 million of six-year exchangeable notes (Baa3) after the market close on Wednesday with price talk for a coupon of 0.25% to 0.75% and an initial exchange premium of 25% to 35%, according to a market source.

The notes will be issued by Kite Realty Group LP and exchangeable for Kite Realty Group shares.

The deal was heard to be in the market with assumptions of 200 basis points over Libor and a 33% vol., a source said.

Using those assumptions, the deal looked 0.63 point cheap at the midpoint of talk.

The offering is rated investment grade. However, the tight pricing was a surprise to some sources with REITs typically pricing wider, a source said.

South Jersey looks cheap

South Jersey Industries plans to price $300 million, or 6 million $50-par equity units, after the market close on Wednesday with price talk for a yield of 8.25% to 8.75% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

The deal was in the market with assumptions of 125 bps over Libor and a 35% to 32% vol. skew, according to a market source.

Using those assumptions, the deal looked 0.8 point cheap at the midpoint of talk.

Ford lags on debut

Ford Motor priced $2 billion of five-year convertible notes (Ba2/BB+/BB+) after the market close on Tuesday at par with a coupon of 0% and an initial conversion premium of 40%, according to a company news release.

Pricing came in line with talk for a fixed coupon of 0% and at the cheap end of talk for an initial conversion premium of 40% to 45%, according to a market source.

The new paper saw heavy volume. “It’s also heavy in terms of price,” a source said.

The 0% notes traded to a low of 99.

They were changing hands between 99.5 and par shortly before 11 a.m. ET.

The majority of trades were outright, a source said.

Ford’s stock was changing hands at $12.37, a decrease of 0.97%, shortly before 11 a.m. ET.

IMAX prices rich

IMAX sold $200 million of five-year convertible notes after the market close on Tuesday at par with a coupon of 0.5% and an initial conversion premium of 35%, according to a company news release.

Pricing came at the rich end of talk for a coupon of 0.5% to 1% and an initial conversion premium of 30% to 35%, according to a market source.

The new paper was strong on debut.

It traded as high as 103 with stock spiking up soon after the opening bell.

However, the new paper settled between 101 to 101.5 about one hour into the session.

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

IMAX’s stock was trading at $21.73, an increase of 2.02%, shortly before 11 a.m. ET.

Rapid7 upsizes

Rapid7 priced an upsized $525 million, from $500 million, of six-year convertible notes after the market close on Tuesday at par with a coupon of 0.25% and an initial conversion premium of 30%.

Pricing came at the cheap end of talk for a coupon of 0% to 0.25% and an initial conversion premium of 30% to 35%, according to a market source.

The new paper was performing well on debut.

It was trading between 100.5 and 101 on an outright basis with stock off about 1%.

The notes expanded 1.5 points dollar-neutral.

Rapid7’s stock was changing hands at $78.54, a decrease of 1.23%, shortly before 11 a.m. ET.

Oil States wall-crossed

Oil States International priced $135 million of five-year convertible notes after the market close on Tuesday at par with a coupon of 4.75% and an initial conversion premium of 25%.

Pricing came at the cheap end of talk for a coupon of 4.25% to 4.75% and an initial conversion premium of 25% to 30%, according to a market source.

Concurrently with the new offering, the company repurchased $125 million of its 1.5% convertible notes due 2023 for $120 million in cash in privately negotiated transactions.

The small offering was wall-crossed, sources said.

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