Morning Commentary: Starwood convertibles on tap; Cerence, World Kinect expand on debut

By Abigail W. Adams

Portland, Me., June 22 – New paper was in focus on Thursday with the convertibles primary market slated to price one new offering after the market close as two new deals made their aftermarket debut.

Starwood Property Trust Inc. plans to price $350 million of four-year convertible notes after the market close on Thursday.

The deal looked cheap based on underwriters’ assumptions but will mostly appeal to outright accounts.

The new offering comes after World Kinect Corp. priced an upsized $300 million of five-year convertible notes and Cerence Inc. sold $190 million of five-year convertible notes after the market close on Wednesday.

The new paper hit the secondary space on a mixed day for equities as markets continue to digest hawkish comments from Fed officials.

The Dow Jones industrial average was down 53 points, or 0.16%, the S&P 500 index was down 0.07%, the Nasdaq Composite index was up 0.23% and the Russell 2000 index was down 0.53% shortly before 11 a.m. ET.

While broader markets were mixed, the new paper was putting in a strong aftermarket performance.

Starwood eyed

Starwood plans to price $350 million of four-year convertible senior notes after the market close on Thursday with price talk for a coupon of 6.25% to 6.75% and an initial conversion premium of 12.5% to 17.5%.

The deal was heard to be in the market with assumptions of 450 basis points over SOFR and a 24% vol.

The offering from the REIT looked cheap based on underwriters’ assumptions, a source said.

However, it will mostly appeal to outright accounts.

World Kinect expands

World Kinect priced an upsized $300 million of five-year convertible notes after the market close on Wednesday at par at the midpoint of talk with a coupon of 3.25% and an initial conversion premium of 27.5%.

Price talk was for a coupon of 3% to 3.5% and an initial conversion premium of 25% to 30%.

The greenshoe was also upsized to $50 million.

The initial size of the offering was $250 million with a greenshoe of $37.5 million.

The new paper dominated activity in the secondary space and made strong gains on an outright and dollar-neutral basis.

The notes were changing hands at 101.125 versus a stock price of $22.30 early in the session.

They expanded about 1 point dollar-neutral.

World Kinect’s stock was seen at $22.50, an increase of 0.90%, shortly before 11 a.m. ET.

Cerence refinances

In a wall-crossed, overnight offering, Cerence priced $190 million of five-year convertible notes after the market close on Wednesday at par at the midpoint of talk with a coupon of 1.5% and an initial conversion premium of 22.5%.

Price talk was for a coupon of 1.25% to 1.75% and an initial conversion premium of 20% to 25%.

The deal came as a refinancing with the company repurchasing $87.5 million in principal of its 3% convertible notes due 2025 for $102 million in cash in privately negotiated transactions.

While the offering looked cheap, its true value came in the kiss for holders of the 3% notes, which were bought back at 116.383, a source said.

Cerence’s 1.5% notes were not active on the tape as stock plunged more than 10% in early trade on the heels of the overnight offering.

The stock drop was expected and priced into Cerence’s latest offering.

While the new 1.5% notes were not yet on Trace, they were performing well on hedge with the notes expanding 1 point dollar-neutral, sources said.

Cerence’s stock was trading at $29.58, a decrease of 10.92%, shortly before 11 a.m. ET.

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