Morning Commentary: American Airlines, Zscaler, PagerDuty, Livent convertibles on tap

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 on deck.

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, sources said. However, pricing continued to tighten on the deals from the tech sector.

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 from the cloud information security company looked about 2 points cheap at the midpoint of talk, sources said.

American Airlines on tap

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.”

PagerDuty eyes market

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.

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.

© 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.