Morning Commentary: Spirit AeroSystems exchangeables ‘successful,’ soar on debut

By Abigail W. Adams

Portland, Me., Nov. 9 – The convertibles secondary space saw an active start to the day on Thursday as the first new paper of the week made its aftermarket debut.

Spirit AeroSystems Inc. priced $200 million of five-year exchangeable notes after the market close on Wednesday, one of a series of capital raises that also included a follow-on stock offering and a junk bond offering.

Spirit’s exchangeable notes issuance is the serial high-yield bond issuer’s first pass at the convertibles market – a crossover sources hope to see more of.

The trend could pave the way to market players employing a more complex capital structure arb strategy than currently possible with the traditional convertible issuers that populate the market, a source said.

The notes hit the secondary space as equity indexes wavered between gains and losses with markets continuing to consolidate after the post-Fed surge of the previous week.

Indexes turned negative as the session progressed with the Dow Jones industrial average down 98 points, or 0.29%, the S&P 500 index down 0.17%, the Nasdaq Composite index down 0.08% and the Russell 2000 index down 0.07% shortly before 11 a.m. ET.

Spirit AeroSystems soars

Spirit AeroSystems priced $200 million of five-year exchangeable notes after the market close on Wednesday at par at the rich end of talk with a coupon of 3.25% and an initial exchange premium of 32.5%.

Price talk was for a coupon of 3.25% to 3.75% and an initial exchange premium of 27.5% to 32.5%.

The offering was one in a series of capital raises.

In a concurrent offering, Spirit AeroSystems priced a follow-on offering of 9,090,909 shares of common stock at $22 per share.

The company also plans to price a $1.2 billion offering of seven-year senior secured second-lien notes (B3/B-) on Thursday to fund a tender for the company’s 7.5% senior secured second-lien notes due 2025.

Initial guidance for the senior notes is for a yield in the low 10% area.

The exchangeable notes looked several points cheap using underwriters’ assumptions of 650 basis points over SOFR and a 42% vol. and played to strong demand.

It was heard to be wall-crossed and mostly spoken for at launch.

The new exchangeable notes skyrocketed outright and made strong dollar-neutral gains on its aftermarket debut.

They traded as high as 107.25 early in the session as stock bounced back from its post-deal announcement drop.

They expanded about 2.5 points dollar-neutral on the move up based on the stock reference price, a source said.

However, market players were establishing their hedges and selling stock mid-session Wednesday, which may have eroded some of the dollar-neutral gains.

“Either way, people made money,” a source said. “It was a successful financing.”

Spirit AeroSystems’ stock was trading at $24.13, an increase of 4.64%, shortly before 11 a.m. ET.

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