Morning Commentary: Coinbase convertibles eyed; Sunnova notes trade down on debut

By Abigail W. Adams

Portland, Me., May 18 – New convertibles paper was in focus on Tuesday with one highly anticipated offering set to price after the market close and two deals making their aftermarket debut.

One month after going public, Coinbase Global Inc. plans to price $1.25 billion of five-year convertible notes after the market close on Tuesday.

The deal looked cheap based on underwriters’ assumptions. However, the credit spread and terms were aggressive, sources said.

Coinbase is the latest offering giving convertible investors an inroad into the highly speculative and controversial world of cryptocurrencies.

As market players eyed Coinbase’s new offering, new paper from Sunnova Energy International Inc. and UGI Corp. made their aftermarket debut.

Coinbase eyed

Coinbase plans to price $1.25 billion of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 55% to 60%, according to a market source.

The deal was heard to be in the market with assumptions of 200 basis points over Libor and a 45% vol.

Using those assumptions, the deal looked about 2 points cheap at the midpoint of talk.

However, the credit spread seemed aggressive for such a young company, a source said. The terms were also extremely aggressive.

“I thought we were done with the exorbitant premia,” a source said.

While Coinbase has only been publicly traded since April 14, there is stock available for borrow at a rate of negative 0.22, a source said.

Sunnova taps market

Sunnova Energy priced $500 million of long five-year convertible notes after the market close on Monday at the cheap end of talk with a coupon of 0.25% and an initial conversion premium of 30%, according to a company news release.

Price talk was for a coupon of 0% to 0.25% and an initial conversion premium of 30% to 35%, according to a market source.

The new paper was struggling on an outright basis.

It traded as low as 97.375 early in the session. While there were a few prints at 100.25 they appeared to be from the underwriter supporting the deal, a source said.

The notes were changing hands at 98.75 shortly before 11 a.m. ET.

Sunnova’s stock traded down to $26.11, a decrease of 1.84%, shortly before 11 a.m. ET.

UGI in focus

UGI priced $200 million par-of-$100 equity units after the market close on Monday at the midpoint of talk with a yield of 7.125% and a threshold appreciation premium of 20%, according to an FWP filing with the Securities and Exchange Commission.

Price talk was for a yield of 6.875% to 7.375% and a threshold appreciation premium of 17.5% to 22.5%, according to a market source.

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