Morning Commentary: Evergy convertible notes offering eyed; busy primary expected

By Abigail W. Adams

Portland, Me., Dec. 4 – The convertibles primary market launched what is expected to be a busy week of issuance with a sizable offering on deck.

Evergy Inc. plans to price $1.1 billion of four-year convertible notes after the market close on Monday with price talk for a coupon of 4.25% to 4.75% and an initial conversion premium of 22.5% to 27.5%.

The deal was heard to be in the market with assumptions of 150 basis points over SOFR and a 19% vol.

Using those assumptions, the deal looked about 2.25 points cheap at the midpoint of talk, a source said.

The deal is the latest in what has become a well-established trend in 2023 – investment-grade utility companies tapping the convertible market to refinance straight debt.

The deal launched on a soft day for markets with equities and Treasuries weak after the strong gains of last Friday’s session.

Indexes were mixed with small caps continuing to outperform after an almost 3% gain the previous session.

The Dow Jones industrial average was down 167 points, or 0.46%, the S&P 500 index was down 1.01%, the Nasdaq Composite index was down 1.65% and the Russell 2000 index was up 0.36% shortly after 11 a.m. ET.

However, the secondary space remained firm.

There was $104 million on the tape early in the session with PG&E Corp.’s new 4.25% convertible notes due 2027 continuing to dominate trading.

The notes were largely unchanged outright.

They were trading at 102 versus a stock price of $17.44 early in the session, according to a market source.

There was $9 million in reported volume.

PG&E’s stock was $17.58, an increase of 0.72%, shortly before 11 a.m. ET.

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