American Water exchangeables in focus; Kaleyra skyrockets on takeover put; Norwegian up

By Abigail W. Adams

Portland, Me., June 28 – The convertibles primary market remained dormant on Wednesday with the window of opportunity for new deals to launch before the end of the quarter most likely closed.

While a backlog of deals remains in the pipeline, earnings season blackouts are expected to put a damper on primary market activity until mid-July.

Meanwhile, the one deal to price in the past week, American Water Capital Corp.’s 3.625% exchangeable notes due 2026 (Baa1/A-), continued to dominate activity in the secondary space.

The notes were lower outright alongside stock on a mixed day for equity markets after the strong gains of the previous session.

The Dow Jones industrial average closed Wednesday down 74 points, or 0.22%, the S&P 500 index closed down 0.04%, the Nasdaq Composite index closed up 0.27% and the Russell 2000 index closed up 0.47%.

There was $550 million in reported volume about one hour before the market close.

While activity in the space focused on American Water’s exchangeable notes, topical news pushed some outstanding issues into the spotlight.

Kaleyra Inc.’s 6.125% convertible notes due 2026, which were issued in connection with the SPAC deal that brought it public, skyrocketed on news of a takeover that will trigger the note’s change-of-control put.

NCL Corp. Ltd.’s exchangeable notes for Norwegian Cruise Line Holdings Ltd.’s stock improved in active trade on a strong day for the sector.

American Water lower

American Water’s 3.625% exchangeable notes continued to dominate activity in the secondary space.

While the notes were lower on an outright basis on a down day for stock, they were largely unchanged on a dollar-neutral, or hedged, basis.

The 3.625% notes were changing hands at 100.375 versus a stock price of $141.77 early in the session, according to a market source.

They traded at 100.125 versus a stock price of $140.48 in the late afternoon.

However, the notes were largely moving in line dollar-neutral, a source said.

There was $89 million in reported volume.

American Water’s stock traded to a high of $142.77 and a low of $140 before closing at $140.98, off 1.33%.

The new paper put in a solid performance on its aftermarket debut on Tuesday with the notes expanding 0.25 point dollar-neutral.

Kaleyra’s takeover

Kaleyra’s 6.125% convertible notes due 2026 skyrocketed on Wednesday following news of a takeover that would trigger the change-of-control put.

The 6.125% notes exploded more than 17 points.

They were trading around 79 heading into Wednesday’s session.

The notes jumped to 97 following the news.

There was $6 million in reported volume.

Kaleyra’a stock traded to a low of $6.50 and a high of $6.89 before closing at $6.69, an increase of 39.38%.

Stock skyrocketed following news TaTa Communications had acquired the company in an all-cash transaction.

TaTa Communications will pay $7.25 per share or $100 million plus outstanding debt, according to a company news release.

The 6.125% notes were issued in a private placement that accompanied the SPAC deal that brought the company public.

The takeover will trigger the par put on the notes, which sparked movement in the name.

Holders of the notes previously had zero liquidity, a source said. “Now there’s liquidity.”

Norwegian improves

Norwegian’s exchangeable notes gained in active trade with Wednesday a strong day for the sector.

The 1.125% exchangeable notes due 2027 gained 3 points outright with stock up more than 7%.

They were trading at 90.75 versus a stock price of $21.04 in the late afternoon.

The notes were moving in line dollar-neutral.

There was $13 million in reported volume.

While Norwegian’s 1.125% exchangeables were largely unchanged on swap, the 2.5% exchangeable notes and 5.375% exchangeable notes expanded in active trade.

The 2.5% notes gained 2 points outright.

They were trading at 93.375 versus a stock price of $21.02 in the late afternoon.

The notes gained 0.5 point dollar-neutral, a source said.

There was $11 million in reported volume.

The 5.375% notes gained 6 points outright to trade at 135 in the late afternoon.

They were up 0.25 point dollar-neutral.

There was $6 million in reported volume.

Norwegian’s stock traded to a low of $19.54 and a high of $21.30 before closing at $21.07, an increase of 7.55%.

Cruise lines bounced on Wednesday with buyers zeroing in on the sector following strong earnings from Carnival.

The demand trends reflected in Carnival’s report raised expectations for strong earnings from its industry peers, a source said.

Mentioned in this article:

American Water Works Co. Inc. NYSE: AWK

Kaleyra Inc. NYSE: KLR

Norwegian Cruise Line Holdings Ltd. NYSE: NCLH

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