T-Mobile cash-settled mandies on tap; American Airlines, Zscaler, PagerDuty, Livent eyed

By Abigail W. Adams

Portland, Me., June 22 – The convertibles primary market launched the week in full force on Monday with four overnight deals totaling $2.3 billion set to price after the market close on Monday and a $3.2 billion mandatory exchangeable offering on deck for Tuesday.

Zscaler Inc. plans to sell $1 billion of five-year convertible notes, American Airlines Group Inc. plans to price $750 million of five-year convertible notes, PagerDuty Inc. plans to price $250 million of five-year convertible notes and Livent Corp. plans to price $225 million of five-year convertible notes after the market close on Monday.

The offerings continued to model cheap based on underwriters’ assumptions and were heard to be doing well during bookbuilding, sources said.

The 2020 Cash Mandatory Exchangeable Trust plans to price up to $3.2 billion, or up to 30 million shares, in three-year cash-settled mandatory securities tied to T-Mobile US, Inc.

The deal is part of SoftBank Group Corp.’s efforts to monetize its stake in T-Mobile.

Zscaler bringing notes

Zscaler plans to sell $1 billion of five-year convertible notes after the market close on Monday with price talk for a coupon of 0.125% to 0.625% and an initial conversion premium of 32.5% to 37.5%.

The deal was heard to be in the market with assumptions of 425 basis points over Libor and a 40% vol., according to a market source.

Using those assumptions, the deal looked about 2 points cheap at the midpoint of talk, sources said.

While Zscaler was the best credit of the deals to launch on Monday, the company has a high short interest rate in its stock, a source said.

And while the deal had the tightest pricing of all those to launch on Monday, it was heard to be doing well during bookbuilding.

The cloud information security company is a well-known name in the cybersecurity sector and is constantly on the acquisition prowl.

There is steady speculation about which smaller companies in the field it is making eyes for, a source said.

Proceeds will be used for general corporate purposes, which may include potential acquisitions and strategic transactions.

Zscaler is a competitor of Palo Alto Networks Inc.

Palo Alto recently brought one of the largest deals of the year and priced a $2 billion issue of 0.375% convertible notes due 2025 in early June.

While the 0.375% convertible notes initially struggled in the secondary, they steadily improved and were changing hands around 100.5 with stock up about 1% during Monday’s session.

Palo Alto stock traded to a high of $234.51 and a low of $230.18 before closing the day at $232.88, an increase of 0.93%.

‘Tight” stock borrow

American Airlines is set to become the latest airline to tap the convertibles market as part of a large capital raise to offset the economic impact of the Covid-19 pandemic.

The airline plans to price $750 million of five-year convertible notes after the market close on Monday with price talk for a coupon of 6% to 6.5% and an initial conversion premium of 17.5% to 22.5%.

The deal was heard to be marketed with assumptions of 1,800 bps over Libor and a 45% vol.

Using those assumptions, the deal modeled 7.875 points cheap at the midpoint of talk, a source said.

Concurrently with the convertible notes, the company is pricing a secondary common stock offering of $750 million, which carries a greenshoe of $112.5 million.

American Airlines also launched a $500 million four-year senior secured term loan B and is believed to be bringing a $1.5 billion junk bond deal on Wednesday, Prospect News reported.

While the deal modeled cheap and was optically very attractive, the credit was shaky.

“Buying the worst house in the worst neighborhood is truly risky,” a source said. “It could also be the most rewarding.”

The borrow on the stock was also tight, sources said. The difficulty with the borrow may be why it was priced so attractively, a source said.

Even when factoring in a difficult borrow, the deal looked about 3 points cheap at the midpoint of talk, a source said.

The secondary offering is also expected to alleviate some of the issues with the borrow.

American Airlines is now the fourth airline to tap the convertibles market in the past two months – Southwest Airlines Co., Spirit Airlines Inc. and Air Canada were all recent convertible notes issuers.

Southwest Airlines holds the title as the largest issuer year to date with its $2.3 billion offering of 1.25% convertible notes due 2025.

The 1.25% convertible notes are a constant presence on the tape and have skyrocketed since pricing.

While the 1.25% notes were coming in on an outright and dollar-neutral basis on Monday, they have outperformed since pricing.

Southwest’s 1.25% convertible notes were changing hands at 121 in the late afternoon.

They were contracted about 0.5 point dollar-neutral.

Southwest stock traded to a high of $34.82 and a low of $33.64 before closing the day at $34.36, a decrease of 0.52%.

However, the notes have expanded roughly 10 points dollar-neutral since pricing in late April, a source said.

While Southwest is an investment-grade company, on a relative value basis, American Airlines’ offering is significantly cheaper, the source said.

PagerDuty oversubscribed

PagerDuty plans to price $250 million of five-year convertible notes after the market close on Monday with price talk for a coupon of 1.25% to 1.75% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of 650 bps over Libor and a 40% vol., a market source said.

Using those assumptions, the deal from the cloud computing company looked 2.875 points cheap at the midpoint of talk.

The deal was heard to be in demand during bookbuilding and well oversubscribed.

Livent’s green bond

Livent plans to sell $225 million of five-year convertible notes after the market close on Monday with price talk for a coupon of 3.625% to 4.125% and an initial conversion premium of 35% to 40%.

The deal was heard to be in the market with assumptions of 800 bps over Libor and a 40% vol., according to a market source.

Using those assumptions, the deal looked 5.625 points cheap at the midpoint of talk.

With proceeds to be used to repay outstanding amounts under its revolving credit facility to refinance eligible green projects and remaining proceeds to be used on eligible green projects, the convertible notes are green bonds.

The green bond designation expands the investor base for the notes with accounts earmarked for green paper able to participate in the offer, a source said.

T-Mobile mandatory on deck

The 2020 Cash Mandatory Exchangeable Trust plans to price up to $3.2 billion, or up to 30 million shares, in three-year cash-settled mandatory securities tied to T-Mobile after the market close on Tuesday with price talk for a dividend of 5.25% to 5.75% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

Concurrently with the trust securities, T-Mobile is pricing a secondary offering of 133,548,303 shares with net proceeds to be used by T-Mobile to repurchase an equal number of shares from a SoftBank subsidiary.

There will also be a rights offering.

T-Mobile plans to repurchase 19.75 million shares held by SoftBank.

Shareholders of record as of June 25 will receive the right to purchase 0.05 of a share of common stock at the same price per share as the secondary offering.

Proceeds from the exchangeable trust offering will go to SoftBank with the securities part of SoftBank’s efforts to monetize a portion of its stake in T-Mobile.

Following the offering, T-Mobile parent company Deutsche Telekom AG will hold 43.5% and SoftBank will hold 8.6% of T-Mobile common stock.

Mentioned in this article:

American Airlines Group Inc. Nasdaq: AAL

Livent Corp. NYSE: LTHM

PagerDuty Inc. NYSE: PD

Palo Alto Networks Inc. NYSE: PANW

T-Mobile US Inc. Nasdaq: TMUS

Southwest Airlines Co. NYSE: LUV

Zscaler Inc. Nasdaq: ZS

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.