Spirit AeroSystems exchangeables ‘successful’; Rivian falls; Spirit Airlines pressured

By Abigail W. Adams

Portland, Me., Nov. 9 – The convertibles secondary space saw an active 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 on a mixed open and heavy close for equity markets as hawkish comments from Federal Reserve chair Jerome Powell threw cold water on the recent risk-on sentiment.

The Dow Jones industrial average closed Thursday down 220 points, or 0.65%, the S&P 500 index closed down 0.81%, the Nasdaq Composite index closed down 0.94% and the Russell 2000 index closed down 1.57%.

There was $711 million in reported volume heading into the market close with Spirit AeroSystems’ exchangeables dominating the tape.

The notes soared on debut.

Rivian Automotive Inc.’s convertible notes remained active with the notes falling alongside stock as the post-earnings sell-off accelerated.

Spirit Airlines Inc.’s 1% convertible notes due 2026 remained for sale with the notes plunging to a new all-time low in heavy volume.

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.

The notes were changing hands at 107.125 versus a stock price of $23.82 in the late afternoon.

There was $64 million in reported volume.

The notes 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 traded to a low of $23.61 and a high of $25.14 before closing at $23.94, an increase of 3.82%.

Rivian falls

Rivian’s convertible notes remained active on Thursday with the notes sinking outright as the post-earnings sell-off in the EV-maker’s stock accelerated.

The most recently priced 3.625% convertible notes due 2030 were off about 6 points outright with stock down almost 8%.

They were trading at 92.25 versus a stock price of $15.84 in the mid-afternoon, according to a market source.

The notes fell to a 90-handle and were trading at 90.625 heading into the market close

There was $19 million in reported volume.

The 4.625% convertible notes due 2029 also fell 6 points outright.

They were trading at 110 early in the session but fell to a 105-handle as the session progressed and were changing hands at 105.75 heading into the market close.

There was $14 million in reported volume.

Rivian’s stock traded to a high of $17.37 and a low of $15.32 before closing at $15.33, a decrease of 9.82%.

The selling in the stock accelerated on Thursday after a confused response to Rivian’s earnings report on Wednesday.

While the market initially cheered on the better-than-expected earnings report and strong production guidance, selling set in mid-session Wednesday with EV-demand and the cost of capital weighing on the company.

Spirit Airlines lower

Spirit Airlines’ 1% convertible notes due 2026 continued to see selling pressure with the notes falling to a new low in heavy volume on Thursday.

The 1% notes fell another 1 point to a 44-handle.

They were trading at 44.75 with the yield about 36.5% in the late afternoon, according to market source.

There was $23 million in reported volume.

While the notes are not equity sensitive, Spirit’s stock continued to fall and closed at $9.31, a decrease of 8.73%.

The notes have plunged 10 points over the past week with the notes on a 55-handle on Monday.

The notes were trading in the low 70s at the end of October.

Regional airlines, in general, have been under pressure with lackluster earnings and a variety of headwinds pressuring the sector.

However, the Department of Justice’s challenge to JetBlue’s takeover of Spirit Airlines has placed additional pressure on both airlines.

Market expectations for a completion of the merger are low as the DOJ trial to block it continues.

Spirit Airlines’ stock is expected to continue to plummet in value if the merger is nixed.

Mentioned in this article:

Rivian Automotive Inc. Nasdaq: RIVN

Spirit AeroSystems Inc. NYSE: SPR

Spirit Airlines Inc. NYSE: SAVE

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