Morning Commentary: Clarus convertible offering eyed; American Airlines notes active

By Abigail W. Adams

Portland, Me., Oct. 22 – The convertibles primary market had one small deal in the works on Thursday.

Clarus Corp. plans to price $85 million of six-year convertible notes after the market close on Thursday with price talk for a coupon of 3% to 3.5% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

Using a credit spread of 750 basis points over Libor and a 37.5% vol., the deal looked 4.4 points cheap, a source said.

However, the stock of the Salt Lake City-based outdoor equipment and lifestyle products company may have a difficult borrow.

Adjusting the credit spread to 1,000 bps over Libor to account for problems with the borrow reduces the fair market value of the deal to par, a source said.

However, the small offering will have a limited audience and is most likely wall-crossed, sources said.

Meanwhile, trading activity in the secondary space was again muted with only $32 million on the tape about one hour into Thursday’s session.

American Airlines Group Inc.’s 6.5% convertible notes due 2025 were active.

The notes were changing hands at 94.75 early in the session with about $4 million on the tape, a source said.

American Airlines’ stock was volatile early in the session, trading as low as $12.42 before paring its losses to trade up to $12.78, an increase of 0.07%, shortly before 11 a.m. ET.

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