PureCycle on tap; Nikola in focus; Envista up; Southern Co., Western Digital active

By Abigail W. Adams

Portland, Me., Aug. 21 – While the convertibles primary market is expected to slow its pace heading into the final two weeks of August, it still had some offerings up its sleeves with an overnight, wall-crossed offering set to price shortly after launching.

PureCycle Technologies Inc. plans to price $200 million of green convertible notes due 2030 after the market close on Monday with price talk for a discounted offer price of 90 a fixed coupon of 7.5% and a fixed initial conversion premium of 50%, according to a market source.

Oppenheimer & Co. Inc. is bookrunner for the Rule 144A offering, which carries a greenshoe of $30 million.

The notes will be accretive for the first four years and reach par on Aug. 15, 2027.

Nikola Corp. also announced a capital raise of up to $325 million in one-year convertible notes prior to the market open. While the offering was more of a private placement, it piqued market players’ interest for its unique structure.

The convertible offering was a Hail Mary financing effort for the troubled EV startup as bankruptcies in the sector pile up.

Meanwhile, the secondary space saw a quiet start to the week with equity indexes mixed as Treasury yields continued their climb to hit their highest level of the year.

The Dow Jones industrial average closed Monday down 37 points, or 0.11%, the S&P 500 index closed up 0.69%, the Nasdaq Composite index closed up 1.56% and the Russell 2000 index closed down 0.18%.

There was $59 million in reported volume about one hour into the session and $366 million on the tape about one hour before the market close with few notable movements in the space.

Envista Holdings Corp.’s 1.75% convertible notes due 2028 (Baa3) saw nominal improvement in heavy volume on Monday although the notes remained well below par.

Trading activity remained concentrated in investment-grade issues with Southern Co.’s 3.875% convertible notes due 2025 (Baa2/BBB) and Western Digital Corp.’s soon-to-mature 1.5% convertible notes due Feb. 1, 2024 (Baa3) the high-grade names of the day.

Nikola’s Hail Mary

In what was largely considered to be a private-private offering, Nikola directly placed $125 million of one-year convertible notes on Monday with the option to sell an additional $200 million of the notes in the next 18 months to participating investors, according to an 8-K filing with the Securities and Exchange Commission.

The convertible notes will be issued at par and bear interest of 5%, which will increase to 12.5% in the event of a default.

The conversion price will be the lower of either the reference share price of $2.94 or the greater of the bond floor of 38 cents or the VWAP of stock on the conversion date, the date preceding the application conversion date or 95% of the VWAP for the three trading days preceding the conversion date.

“They must have really needed money,” a source said of the offering.

The placement was most likely the result of an anchor order from the company’s largest shareholders.

Nikola’s common stock purchase agreement with Tumim Stone Capital LLC was terminated in order to complete the requirements of the offering.

Tumim was most likely involved in the placement with the stock purchase agreement and convertible note placement an either/or scenario, a source said.

The capital raise comes after the EV maker was forced to halt production of its electric trucks following a recall announced on Aug. 14.

There is no set date for the resumption of production of the trucks with the recall expected to significantly impact the company’s financial condition, the company announced alongside its convertible notes deal.

Nikola’s stock closed Monday at $1.51, a decrease of 22.96%.

Nikola has a checkered history with its founder convicted of securities fraud in 2022 for misleading investors.

Trouble has been mounting for EV startups with the recent bankruptcy filings from Lordstown Motors and Proterra a sign of trouble in the industry

While the unique structure of the placement and interesting circumstances surrounding it had market players talking, the deal is not expected to have any impact on the broader convertibles market.

Envista improves

Envista’s recently priced 1.75% convertible notes due 2028 saw nominal improvement on Monday after hitting a 96-handle the previous week.

The 1.75% notes were changing hands at 97.625 versus a stock price of $32.95 in the late afternoon, according to a market source.

There was $20 million in reported volume.

Envista’s stock traded to a low of $32.71 and a high of $33.24 before closing at $33.09, up 1.25%.

The notes traded down to a 96-handle last Thursday after pricing at par on Aug. 7.

Active IG

Investment-grade issues again dominated the tape on a quiet session on Monday with Southern Co.’s 3.875% convertible notes due 2025 and Western Digital’s short-duration 1.5% convertible notes due Feb. 1, 2024 in focus.

Southern Co.’s 3.875% convertible notes were slightly weaker with the move in Treasuries.

The 3.875% notes were changing hands at 98.25 versus a stock price of $67.45 early in the session, according to a market source.

They were marked at 98.125 versus a stock price of $67.40 in the late afternoon.

There was $15 million in reported volume.

Southern Co.’s stock traded to a high of $67.85 and a low of $67.14 before closing at $67.61, off 0.29%.

Western Digital’s 1.5% convertible notes were changing hands at 98 with the yield about 6.125% in the late afternoon.

There was $14 million in reported volume.

Western Digital’s 1.5% notes have long traded at par with the notes to be redeemed at par on their maturity.

Mentioned in this article:

Envista Holdings Corp. NYSE: NVST

Nikola Corp. Nasdaq: NKLA

Southern Co. NYSE: SO

Western Digital Corp. Nasdaq: WDC

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