Air Transport on deck; Apollo mandatories upsized, trades up on debut; RingCentral taps junk market

By Abigail W. Adams

Portland, Me., Aug. 9 – The convertible primary market stood poised for one of the busiest weeks of the year with one overnight offering on deck.

Air Transport Services Group Inc. plans to price $350 million of six-year convertible notes after the market close on Wednesday with price talk for a coupon of 3.75% to 4% and an initial conversion premium of 42.5% to 45%, according to a market source.

Truist Securities (lead left) and Oppenheimer& Co. Inc. are bookrunners for the Rule 144A offering, which carries a greenshoe of $50 million.

The new deal activity comes after Apollo Global Management Inc. priced an upsized $1.25 billion offering of three-year $50-par series A mandatory convertible preferred stock (Baa1/BBB/BBB) after the market close on Tuesday.

While the window still remains open, the Aug. 7 week already claims the title of the fourth busiest week of the year for new deal activity.

The deals to price in the past week included a crossover refinancing deal with Fluor Corp. tapping the convertible market to take out its high-yield debt.

While the convertible market had anticipated an influx of high-yield issuers tapping convertibles to refinance their straight debt, the trend has not been as strong as predicted with the majority of issuers coming from the investment-grade market.

The road between the high-yield and convertibles markets has been a two-way street with some convertible issuers turning to the straight debt market to refinance their convertible debt.

In a move that left many scratching their heads, RingCentral Inc. announced a $400 million offering of seven-year, non-call three senior notes to refinance its outstanding convertible debt.

“Why would they do this?” a source said.

Meanwhile, earnings-related and topical news combined with an uptick of volatility in equity markets continued to spark large price movements in the secondary space.

Equity indexes closed in the red after a mixed open ahead of Thursday’s release of the Consumer Price Index report with the Dow Jones industrial average down 191 points, or 0.54%, the S&P 500 index down 0.70%, the Nasdaq Composite index down 1.17% and the Russell 2000 index down 0.86%.

Apollo’s new mandatory preferred stock was putting in a strong aftermarket performance with the new paper trading up on an outright and dollar-neutral basis.

DISH Network Corp.’s convertible notes (Caa2/CCC-) remained in focus with the notes continuing to make strong gains following news of its merger with EchoStar.

Akamai Technologies Inc.’s notes shot higher alongside stock in active trade following earnings.

Apollo’s mandatories

Apollo priced an upsized $1.25 billion offer of three-year $50-par series A mandatory convertible preferred stock (Baa1/BBB/BBB) after the market close on Tuesday at par at the midpoint of talk with a dividend of 6.75% and a threshold appreciation premium of 20%.

Price talk was for a dividend of 6.5% to 7% and a threshold appreciation premium of 17.5% to 22.5%.

The greenshoe was also upsized to $187.5 million.

The initial size of the offering was $1 billion with a greenshoe of $150 million.

The deal marked the first completed mandatory convertible offering of the year.

It played to strong demand during bookbuilding and was putting in a solid performance in the aftermarket.

The preferred stock traded up to $50.50 early in the session although the shares came in on an outright basis as the session progressed.

The preferred stock was seen trading at $50.10 in the late afternoon.

They expanded about 0.5 point dollar-neutral, a source said.

Apollo stock traded to a high of $82.60 and a low of $80.98 before closing the day at $81.70, a decrease of 0.95%.

RingCentral goes junk

In a move that was a surprise to many sources, serial convertible issuer RingCentral announced that it would be making its debut appearance in the high-yield market with a junk bond offering to refinance its convertible debt.

RingCentral announced a $400 million offering of seven-year, non-call three senior notes (with terms not final) on Wednesday with initial price talk for a yield of 8½% to 8¾%, a source said.

Proceeds from the offering will be used to refinance its convertible debt.

RingCentral currently has $539 million outstanding of its 0% convertible notes due 2025.

The company repurchased $461 million of the $1 billion issue for $425 million in cash in May.

The previous buyback was funded by a drawdown of its term loan facility and cash on hand.

RingCentral also has $650 million outstanding in 0% convertible notes due 2026.

Both issues carry conversion premiums of about 1,000% with conversion of little concern.

The 2025 notes trade with a yield of about 5.5% and the 2026 notes carry a yield of about 7.5%, so the decision to issue straight debt to refinance its convertible debt left many scratching their heads.

“That’s weird,” a source said. “Why would they take out a 0% coupon with straight debt?”

DISH gains continue

DISH’s convertible notes continued to log strong gains in heavy volume with buyers piling into the notes following news the company would merge with EchoStar.

“The frenzy continues,” a source said.

DISH’s 0% convertible notes due 2026 traded up to $68.75 versus a stock price of $8.29 in the late afternoon.

There was $34 million in reported volume.

The 3.375% convertible notes due 2026 were changing hands at 63.625 versus a stock price of $8.35 in the late afternoon.

There was $10 million in reported volume.

Both tranches added about 2.5 points dollar-neutral, a source said.

DISH stock traded to a low of $8.12 and a high of $8.73 before closing the day at $8.27, a decrease of 1.19%.

DISH’s capital structure has surged since the company announced it would merge with EchoStar in an all-stock transaction on Tuesday.

Akamai’s earnings

Akamai’s convertible notes shot higher in active trade as stock jumped following an earnings beat.

The 0.375% convertible notes due 2027 added 6 points outright with stock up 8%.

They were changing hands at 104.375 versus a stock price of $103.53 in the late afternoon, according to a market source.

It marked the first time the notes have traded above par since November 2022.

There was $19 million in reported volume.

Akamai’s 0.125% convertible notes due 2025 jumped 7 points outright.

They were changing hands at 116.125 versus a stock price of $22.61 in the late afternoon.

There was $15 million in reported volume.

Akamai’s stock traded to a low of $101.08 and a high of $107.47 before closing the day at $102.99, an increase of 8.47%.

Stock surged after the cybersecurity company beat expectations with earnings per share of $1.49 versus the $1.41 expected and revenue of $935.72 million versus the $930.10 million expected.

Mentioned in this article:

Akamai Technologies Inc. Nasdaq: AKAM

Apollo Global Management Inc. NYSE: APO

DISH Network Corp. Nasdaq: DISH

RingCentral Inc. NYSE: RNG

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