Sphere, Evolent, Merit convertible offerings play to strong demand; Evergy up on debut

By Abigail W. Adams

Portland, Me., Dec. 5 – The convertibles primary market remained hopping on Tuesday with three deals on deck after $1.2 billion priced the previous session.

Evolent Health Inc. plans to price $350 million of six-year convertible notes, Sphere Entertainment Co. plans to price $225 million of five-year convertible notes, and Merit Medical Systems Inc. plans to sell $550 million of five-year convertible notes after the market close on Tuesday.

The deals looked cheap based on underwriters’ assumptions and each were heard to be playing to strong demand, sources said.

As market players eyed the new deals in the works, Evergy Inc.’s new convertible notes hit the secondary space.

The new paper was performing well on a mixed day for equities with small caps the laggards after the strong gains of the previous two sessions.

The Dow Jones industrial average closed Tuesday down 80 points, or 0.22%, the S&P 500 index closed down 0.06%, the Nasdaq Composite index closed up 0.31% and the Russell 2000 index closed down 1.38%.

There was $290 million in convertible bond trading volume about one hour into the session and $628 million on the tape in the late afternoon.

Evergy’s new paper dominated activity in the space with the notes notching outright and dollar-neutral gains.

Evolent in demand

Evolent Health plans to price $350 million of six-year convertible notes with price talk for a coupon of 3.25% to 3.75% and an initial conversion premium of 37.5% to 42.5%.

The deal was heard to be in the market with assumptions of 450 basis points over SOFR and a 45% vol.

Using those assumptions, the deal looked about 5.5 points cheap at the midpoint of initial talk, a source said.

The deal was partly wall-crossed and largely covered at the time of launch, a source said.

Talk tightened during book building to a coupon of 3.5% and an initial conversion premium of 40% to 42.5%, a source said.

Sphere eyed

Sphere Entertainment plans to price $225 million of five-year convertible notes with price talk for a coupon of 3.25% to 3.75% and an initial conversion premium to 25% to 30%.

The deal was heard to be in the market with assumptions of 800 bps over SOFR and a 45% vol.

Using those assumptions, the deal looked about 4 points cheap at the midpoint of talk, a source said.

While the offering modeled cheap, some sources were surprised by the coupon and premium range given the fundamentals of the company.

Sphere Entertainment is “far from being profitable,” a source said.

However, the offering played to strong demand with pricing believed to be coming at the mid to cheap end of talk.

Merit Medical tightens talk

Merit Medical Systems’ offering of $550 million of five-year convertible notes saw heavy demand with talk tightening to a coupon of 3% to 3.25% and an initial conversion premium of 32.5%, a source said.

Original price talk was for a coupon of 3.5% to 4% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of 350 bps over SOFR and a 27% vol.

Using those assumptions, the deal looked about 4.5 points cheap at the midpoint of initial talk, although the repricing took some cheapness out of the deal, sources said.

Evergy performs well

Evergy priced an upsized $1.2 billion of four-year convertible notes after the market close on Monday at par with a coupon of 4.5% and an initial conversion premium of 22.5%.

Pricing came at the midpoint of talk for a coupon of 4.25% to 4.75% and at the cheap end of talk for an initial conversion premium of 22.5% to 27.5%.

While the market has been inundated with high-grade paper from utility companies, Evergy’s offering played to solid demand during book building and performed well in the secondary space.

The notes were trading just above par with stock off shortly after the opening bell, a source said.

They continued to rise outright as stock pared its losses and turned positive as the session progressed,

The notes were trading just shy of 100.5 versus a stock price of $50.73 in the late afternoon, according to a market source.

They expanded dollar-neutral.

There was $184 million in reported volume in the late afternoon.

Evergy’s stock traded to a low of $49.95 and a high of $51.32 before closing up 1.51% at $51.21.

Mentioned in this article:

Evergy Inc. Nasdaq: EVRG

Evolent Health Inc. NYSE: EVH

Merit Medical Systems Inc. Nasdaq: MMSI

Sphere Entertainment Co. NYSE: SPHR

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