Morning Commentary: American Water convertible notes offering on deck

By Abigail W. Adams

Portland, Me., June 26 – The convertible bond primary market launched the final week of the second quarter with a sizeable offering.

In the latest in a wave of investment-grade issuance, American Water Capital Corp. plans to price $900 million in three-year convertible notes (Baa1/A) after the market close on Monday with price talk for a coupon of 3.375% to 3.875% and an initial conversion premium of 22.5% to 27.5%.

The deal was being marketed with assumptions of 100 basis points over SOFR and a 19% vol.

Using those assumptions, the deal looked about 1.625 points cheap at the midpoint of talk, a source said.

The pricing was reasonable and largely in line with the other three-year investment grade convertible notes to price in the past year, which averaged about 1.5 points cheap, a source said.

“You can’t expect high valuations on short-duration, IG paper,” the source said.

Sources expect additional issuance in the coming days before the quarter draws to a close.

Meanwhile, the secondary space was quiet early Monday with equity indexes mixed.

The Dow Jones industrial average was down 58 points, or 0.17%, the S&P 500 index was down 0.05%, the Nasdaq Composite index was up 0.02% and the Russell 2000 index was up 0.61% shortly before 11 a.m. ET.

There was $33 million in reported volume about one hour into the session with no name seeing concentrated trading activity.

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