Morning Commentary: BrightSpring equity units price amid disappointing IPO; JetBlue up

By Abigail W. Adams

Portland, Me., Jan. 26 – The convertibles primary market cleared the calendar with BrightSpring Health Services Inc.’s $400 million offering of $50-par three-year tangible equity units pricing post-close Thursday alongside a disappointing IPO.

The tangible equity units came at the cheap end of talk with a dividend of 6.75% and a threshold appreciation premium of 17.5%.

Price talk was for a dividend of 6.25% to 6.75% and a threshold appreciation premium of 17.5% to 22.5%.

Valuation of the units was difficult due to their pricing alongside the company’s IPO with the real value to be determined by BrightSpring’s equity, sources said.

BrightSpring’s IPO struggled with pricing coming well below the targeted range of $15 to $18.

BrightSpring priced 53.3 million shares at $13 to raise $693.33 million.

While the equity priced about 15% below the low end of the targeted range, many investors still felt the price tag was too high with real demand coming at $11.

The stock was not expected to trade well on debut.

BrightSpring’s stock and the equity units had not yet begun to trade early Friday, a source said.

While market players awaited BrightSpring to hit the tape, it was a quiet open in the convertibles secondary space on a muted day for equities.

Equity indexes were either side of unchanged at the open but gaining steam as the session progressed with the Dow Jones industrial average up 125 points, or 0.33%, the S&P 500 index up 0.19%, the Nasdaq Composite index up 0.12% and the Russell 2000 index up 0.53% shortly before 11 a.m. ET.

There was $54 million in reported convertible bond trading volume about one hour into the session with topical news driving volume.

JetBlue Airways Corp. and Spirit Airlines, Inc. were once again dominating the headlines after JetBlue announced it had informed Spirit Airlines their merger agreement may be terminated after Jan. 28.

JetBlue’s 0.5% convertible notes due 2026 rallied on the announcement.

The 0.5% convertible notes gained 1.5 points outright to trade up to 82 early in the session, a source said.

JetBlue’s stock also gained and was trading at $5.40, an increase of 1.12%, shortly before 11 a.m. ET.

Spirit Airlines’ 1% convertible notes due 2026 dropped 4 points on the news.

They traded down to 37.625 with a yield of 49.375% early in the session.

Spirit’s stock dropped to $6.05, a decrease of 16.34%, shortly before 11 a.m. ET.

The termination would come over Spirit Airlines’ objection with Spirit previously stating it expected JetBlue to stand by the agreement and appeal the verdict in the antitrust suit that blocked it.

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