Morning Commentary: Spirit AeroSystems exchangeable notes offering eyed

By Abigail W. Adams

Portland, Me., Nov. 8 – The convertible primary market had one offering on deck on Wednesday from a serial high-yield issuer tapping the convertible market for the first time.

Spirit AeroSystems Inc. plans to price $200 million of five-year exchangeable notes after the market close on Wednesday with price talk for a coupon of 3.25% to 3.75% and an initial exchange premium of 27.5% to 32.5%.

The company also announced a $200 million follow-on offering of common stock.

The exchangeable notes offering was heard to be in the market with assumptions of 650 basis points over SOFR and a 42% vol.

Using those assumptions, the deal looked about 5 points cheap at the midpoint of talk, a source said.

The credit assumption seemed overly conservative despite the recent headwinds experienced by the company.

Spirit is a serial high-yield issuer with a large amount of outstanding secured and unsecured debt, including about $1.2 billion in first-lien and second-lien notes set to mature in 2025.

The aerostructure manufacturer has experienced a series of quality control issues that have impacted its relationship with Boeing in recent months, its primary source of revenue.

However, a recent supply agreement with Boeing gave the company a boost with its straight debt trading with a much tighter credit spread than the assumption used for the convertible note offering.

The company’s 4.6% senior notes due 2028 (Caa1/CCC+) currently trade with a spread of 436 bps, a source said.

However, the wide credit spread may have been a method to knock down the coupon of the exchangeable notes, the source said.

Spirit AeroSystems is the latest crossover issuer to tap the convertibles market in search of cheap financing, something sources had expected to see more of in 2023.

While the majority of crossover issuers to tap the convertibles market over the past year have been investment grade, the rate environment may support continued crossovers from the high-yield market in the coming year, sources say.

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