TPI Composites, Encore convertibles expand on debut; IG paper struggles; Novavax plunges

By Abigail W. Adams

Portland, Me., March 1 – It was another active day in the convertibles secondary market as $315 million in new supply entered the space.

TPI Composites Inc. priced an upsized $115 million of five-year convertible notes and Encore Capital Group Inc. sold an upsized $200 million of six-year convertible notes after the market close on Tuesday.

The new notes were putting in a solid performance on their aftermarket debut with both deals trading up on an outright and dollar-neutral basis.

The new paper hit the secondary space as equities remained volatile amid continued rate concerns.

Equity indexes again wavered between gains and losses before closing the day mixed.

The Dow Jones industrial average closed up 5 points, or 0.02%, the S&P 500 index closed down 0.47%, the Nasdaq Composite index closed down 0.66% and the Russell 2000 index closed up 0.06%.

There was $670 million in reported volume about one hour before the market close with new paper continuing to dominate the tape.

While new notes from TPI and Encore were strong, the recent slate of investment-grade issuance continued to weaken.

Alliant Energy Corp.’s 3.875% convertible notes due 2026 (BBB+), 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+) fell further below par in heavy volume.

While new paper drove trading volumes, topical news drove the largest price movements with Novavax Inc.’s 5% convertible notes due 2027 the disaster du jour.

The 5% notes cratered double digits on an outright and dollar-neutral basis after the company announced substantial doubt about its ability to continue operations through the year.

TPI Composites expands

TPI Composites priced an upsized $115 million of five-year convertible notes after the market close on Tuesday at par at the midpoint of talk with a coupon of 5.25% and an initial conversion premium of 30%.

Price talk was for a coupon of 5% to 5.5% and an initial conversion premium of 27.5% to 32.5%.

The greenshoe was also upsized to $17.5 million.

The initial size of the offering was $100 million with a greenshoe of $15 million.

The new paper was putting in a solid performance on an outright and dollar-neutral basis.

The notes were changing hands at 100.625 versus a stock price of $11.32 early in the session.

They were trading at 101.625 versus a stock price of $11.26 in the late afternoon.

The notes expanded upwards of 1.5 points dollar-neutral, a source said.

There was $36 million in reported volume, which was heavy given the small size of the issue, a source said.

TPI’s stock traded to a low of $11.20 and a high of $11.60 before closing at $11.24, a decrease of 2.77%.

Encore rises

Encore Capital priced an upsized $200 million of six-year convertible notes after the market close on Tuesday at par at the midpoint of talk with a coupon of 4% and an initial conversion premium of 27.5%.

Price talk was for a coupon of 3.75% to 4.25% and an initial conversion premium of 25% to 30%.

The greenshoe was also upsized to $30 million.

The initial size of the offering was $175 million with a greenshoe of $26.25 million.

The notes made solid gains on an outright and dollar-neutral basis.

The notes were changing hands at 101.5 versus a stock price of $52.20 early in the session, according to a market source.

They were trading at 101.25 versus a stock price of $52.63 in the late afternoon.

The notes expanded 1 point dollar-neutral.

There was $38 million in reported volume.

Encore’s stock traded between $51.52 and $52.94 before closing at $52.87, up 2.3%.

IG struggles

The recent slate of investment-grade paper continued to struggle in secondary market activity, which sources attributed to oversaturation.

Southern Co.’s 3.875% convertible notes due 2025 fell another 0.75 point outright in heavy volume.

The notes were seen at 97.75 versus a stock price of $61.99 in the late afternoon, according to a market source.

There was $73 million in reported volume.

Southern Co.’s stock traded to a low of $61.73 and a high of $62.71 before closing at $62.32, down 1.13%.

Alliant’s 3.875% convertible notes due 2026 sank another 1 point outright their second day in the secondary space.

The notes traded down to 98.75 in the late afternoon.

There was $41 million in reported volume.

Alliant’s stock traded to a low of $49.66 and a high of $51.14 before closing at $50.25, a decrease of 1.99%.

PPL’s 2.875% convertible notes due 2028 fell another 0.5 point outright.

The notes were changing hands at 97.75 versus a stock price of $26.70 in the late afternoon.

There was $40 million in reported volume.

PPL’s stock traded to a high of $26.99 and a low of $26.58 before closing at $26.68, off 1.44%.

While PPL’s 2.875% notes expanded as much as 2 points on debut, the notes are now down 1.5 points dollar-neutral from pricing.

Novavax plummets

Novavax’s 5% convertible notes due 2027 plummeted on an outright and dollar-neutral basis after the company announced substantial doubt about its ability to continue operations through 2023.

The 5% notes dropped 20 points outright and contracted 7 to 11 points dollar-neutral on the news, sources said.

The 5% notes were seen just shy of 66 versus a stock price of $6.80 early in the session.

They were trading at 66.25 versus a stock price of $6.76 in the late afternoon.

The notes contracted 11 points dollar-neutral on a 70% delta, a source said.

They fell 7 points dollar-neutral on a 95% hedge, another source said.

There was $7 million in reported volume.

Novavax’s stock traded to a low of $6.64 and a high of $7.16 before closing the day at $6.86, a decrease of 25.92%.

The vaccine maker and pandemic darling announced alongside earnings post-close on Monday that there was substantial doubt about its ability to continue as a going concern.

“And so soon after raising capital,” a source said.

Novavax priced a $175.25 million issue of the 5% notes in late December.

Mentioned in this article:

Alliant Energy Corp. Nasdaq: LNT

Encore Capital Group Inc. Nasdaq: ECPG

Novavax Inc. Nasdaq: NVAX

PPL Capital Funding Inc. NYSE: PPL

Southern Co. NYSE: SO

TPI Composites Inc. Nasdaq: TPIC

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