TPI, Encore convertible notes eyed; Alliant weak on debut; Southern Co., PPL lower

By Abigail W. Adams

Portland, Me., Feb. 28 – The convertibles primary market continued to churn out new offerings with two deals slated to price after the market close on Tuesday after one deal cleared the market post-close on Monday.

TPI Composites Inc. plans to price $100 million of five-year convertible notes and Encore Capital Group Inc. plans to price $175 million of six-year convertible notes after the market close on Tuesday.

The deals looked cheap based on underwriters’ assumptions and were expected to play to solid demand from hedge accounts after the slate of investment-grade issuance.

As market players eyed the new deals in the works, Alliant Energy Corp.’s three-year convertible notes (BBB+) made their aftermarket debut.

The new paper saw a weak start in the secondary space with the notes dropping below par out of the gate.

The deal was the third investment-grade rated paper to price since last Tuesday, and the over-saturation continued to drag down their aftermarket performance.

Southern Co.’s 3.875% convertible notes due 2025 (Baa2/BBB) and PPL Capital Funding Inc.’s 2.875% convertible notes due 2028 (Baa1/BBB+) continued to move lower in heavy volume with all of the recent investment-grade paper trading below par.

“It seems like accounts got stuffed with paper,” a source said.

However, the uptick in issuance and the credit quality of issuers were hailed as positive long-term signs for the market.

Refinancings remained the driving force of new issuance with the comparatively cheap rates offered by the convertibles market beginning to capture the refinancing needs of high-yield and investment-grade issuers.

However, there have been several instances of convertible issuers turning to straight debt or private placements to refinance outstanding convertible notes with Alteryx, Inc. the latest example.

Alteryx started a roadshow on Tuesday for a $350 million offering of five-year senior notes that will run through Thursday with pricing expected thereafter.

Early guidance has the notes coming with a yield in the low 9% area, Prospect News reported.

Proceeds may be used for the potential repurchase of the company’s outstanding convertible notes.

TPI looks cheap

TPI Composites plans to price $100 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 5% to 5.5% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of a 1,000 basis points credit spread and a 45% vol., a source said.

Using those assumptions, the deal looked about 3.7 points cheap with an off the top borrow rate, a source said.

The borrow rate has historically been tough, which may affect demand and drive pricing toward the cheap end of talk, another source said.

However, with the large coupon, the small offering is expected to do well.

Encore’s refinancing

Encore Capital Group plans to sell $175 million of six-year convertible notes after the market close on Tuesday with price talk for a coupon of 3.75% to 4.25% and an initial conversion premium of 25% to 30%.

The deal was heard to be in the market with assumptions of a 625 bps credit spread and a 30% vol.

Using those assumptions, the deal looked about 2.5 points cheap at the midpoint of talk.

Encore is a well-known name in the convertibles universe.

The deal is expected to play to strong demand with the offering coming as a refinancing and meeting a lot of accounts’ portfolio requirements, a source said.

Proceeds will be used to repurchase a portion of Encore Capital Europe Finance Ltd.’s 4.5% exchangeable senior notes due 2023 in privately negotiated transactions.

Alliant weak

Alliant Energy priced $500 million of three-year convertible notes (BBB+) after the market close on Monday at par at the cheap end of talk with a coupon of 3.875% and an initial conversion premium of 25%.

Price talk was for a coupon of 3.375% to 3.875% and an initial conversion premium of 25% to 30%.

The new paper struggled on debut and traded below par out of the gate.

The new 3.875% notes were trading in the 99.75 to par context early in the session with most prints below par, a source said.

They were seen changing hands at 99.75 versus a stock price of $51.54 in the late afternoon.

There was $91 million in reported volume.

Alliant’s stock traded to a low of $50.76 and a high of $52.07 before closing at $51.27, a decrease of 0.37%.

IG moves lower

The recent investment-grade deals continued to move lower in heavy volume on Tuesday.

Southern Co.’s 3.875% convertible notes due 2025 were down about 0.5 point outright with stock off 1%.

The notes traded as low as 98.25 early in the session and were seen at 98.75 versus a stock price of $63.71 in the late afternoon.

There was $67 million in reported volume.

Southern Co.’s stock traded to a high of $64.42 and a low of $63.02 before closing at $63.06, down 2.05%.

The notes have traded below par and contracted dollar-neutral since hitting the secondary space last Friday.

PPL’s 2.875% convertible notes due 2028 continued to give back its early gains with the notes down another 1 point outright.

They were changing hands at 98.625 early in the session and were trading at 98.5 versus a stock price of $27.35 in the late afternoon.

There was $37 million in reported volume.

PPL’s stock traded to a low of $27.06 and a high of $27.68 before closing at $27.07, a decrease of 1.78%.

The notes made a strong aftermarket debut on Feb. 22 and rose 2 points outright and dollar-neutral.

However, they have been on a downtrend since their initial days in the market.

Mentioned in this article:

Alliant Energy Corp. Nasdaq: LNT

Encore Capital Group Inc. Nasdaq: ECPG

PPL Capital Funding Inc. NYSE: PPL

TPI Composites Inc. Nasdaq: TPIC

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