Morning Commentary: Vertex convertible notes in demand, gain on debut; Uniti active

By Abigail W. Adams

Portland, Me., April 24 – The convertibles secondary space saw an uptick of activity on Wednesday as the first new paper in three weeks made its aftermarket debut.

In a heavily oversubscribed offering, Vertex Inc. priced an upsized $300 million of five-year convertible notes after the market close on Tuesday.

The new paper hit the secondary space on a mixed open for equities with indexes taking a breather from the strong gains of the previous two sessions.

The Dow Jones industrial average was down 74 points, or 0.19%, the S&P 500 index was down 0.06%, the Nasdaq Composite index was up 0.32% and the Russell 2000 index was down 0.25% shortly before 11 a.m. ET.

There was $108 million in reported convertibles trading volume about one hour into the session with Vertex’s new convertible notes accounting for almost half of the activity.

The new paper was putting in a strong performance on its aftermarket debut.

Outside of the new paper, earnings and topical news continued to spark large price movements.

Uniti Group Inc.’s 7.5% convertible notes due 2027, an off-the-run issue that rarely trades in volume, was among the most actively traded issues early in the session with the notes moving on reports that Uniti and Windstream were closing in on a merger agreement.

Vertex gains

Vertex priced an upsized $300 million of five-year convertible notes after the market close on Tuesday at par with a coupon of 0.75% and an initial conversion premium of 30%.

Pricing came at the rich end of talk for a coupon of 0.75% to 1.25% and the midpoint of talk for an initial conversion premium of 27.5% to 32.5%.

The greenshoe was also upsized to $45 million.

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

The offering was heavily oversubscribed with the deal modeling cheap, the company a new addition to the market, and the market hungry for new paper.

The convertibles were putting in a strong performance on their aftermarket debut.

The notes were trading at 102.25 versus a stock price of $29.21 early in the session, according to a market source.

There was $51 million in reported volume.

Vertex’s stock was trading at $29.15, an increase of 4.33% intraday.

Uniti in focus

Uniti’s 7.5% convertible notes due 2027, an off-the-run issue that rarely trades in volume, was among the top traded issues early Wednesday with news of Uniti’s imminent combination with Windstream sparking activity in the name.

The 7.5% notes were trading at 107.5 versus a stock price of $5.92 early in the session, according to a market source.

There was $7 million on the tape.

Uniti’s stock was trading at $5.88, an increase of 2.53%, shortly before 11 a.m. ET.

The notes were active following reports that Uniti and Windstream were on the cusp of announcing a $15 billion merger agreement.

Uniti and Windstream have a sordid history.

Uniti formed through a spinoff from Windstream in 2015, which included a leaseback arrangement for fiber optic cables.

Creditors of Windstream challenged the validity of the leaseback arrangement and their victory in court resulted in Windstream filing for bankruptcy in February 2019.

Windstream and Uniti were almost opponents in a court battle over the leaseback agreement but were able to settle their dispute in March 2020.

Windstream emerged from bankruptcy in September 2020.

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