Morning Commentary: Apollo mandatories on deck; Fluor, Hannon Armstrong, Envista hit aftermarket

By Abigail W. Adams

Portland, Me., Aug. 8 – The convertible primary and secondary markets were hopping on Tuesday with one $1 billion offering set to price after the market close and $1.285 billion in new supply making aftermarket debuts.

Apollo Global Management Inc. plans to price $1 billion of three-year $50-par series A mandatory convertible preferred stock after the market close on Tuesday.

The deal is expected to play to heavy demand and claim the title of the first completed mandatory convertible offering of the year.

SVB Financial Group’s $500 million offering of mandatory convertible preferred stock on March 9 was the first attempted mandatory offering of the year.

It was unsuccessful.

Meanwhile, it was a busy day in the convertible secondary space as new paper from Envista Holdings Corp., Fluor Corp. and Hannon Armstrong Sustainable Infrastructure Capital Inc. made their aftermarket debuts.

The new paper hit the market on a heavy day for equities with a Moody’s Investors Service downgrade of 10 small and midsize banks reigniting concerns about the health of the banking system.

The Dow Jones industrial average was down 413 points, or 1.16%, the S&P 500 index was down 1.12%, the Nasdaq Composite index was down 1.51% and the Russell 2000 index was down 1.58% shortly before 11 a.m. ET.

While a weak day for the market, the new paper was holding up well with new bonds from Envista and Fluor trading up on an outright and dollar-neutral basis.

While Hannon Armstrong’s exchangeables fell below par, they were flat dollar-neutral.

Apollo eyed

Apollo Global Management plans to price an offering for $1 billion of three-year $50-par series A mandatory convertible preferred stock (Baa1/BBB/BBB) after the market close on Tuesday with price talk for a dividend of 6.5% to 7% and a threshold appreciation premium of 17.5% to 22.5%.

The deal was heard to be in the market with a credit spread of 175 basis points over SOFR and a 28% to 30% vol. skew.

Using those assumptions, the deal looked 1 to 1.5 points cheap at the midpoint of talk, a source said.

The deal is expected to play to strong demand with the offering the first mandatory of the year and the yield and yield spread attractive with the common stock yielding about 2%, a source said.

However, the current high-rate environment takes some juice out of the offering.

“If you believe rates are coming down in the next year to year and a half, these will do well,” a source said.

Envista expands

Envista Holdings priced $435 million of five-year convertible notes (Baa3) after the market close on Monday at par with a coupon of 1.75% and an initial conversion premium of 32.5%.

Price came wide of tightened talk for a coupon of 1% to 1.5% but on top of revised talk for an initial conversion premium of 32.5%

Initial price talk was for a coupon of 2% to 2.5% and an initial conversion premium of 27.5% to 32.5%.

The new paper was quiet in the secondary with only a few prints on the tape about one hour into the session.

However, they were performing well despite the heaviness in the market.

The 1.75% notes were changing hands in the 100.125 to 100.75 context with stock off early in the session.

They expanded about 0.75 point to 1 point dollar-neutral, a source said.

Envista stock was trading at $34.64, a decrease of 0.82%, shortly before 11 a.m. ET.

Fluor strong

Fluor priced $500 million of six-year convertible notes after the market close on Monday at par at the rich end of talk with a coupon of 1.125% and an initial conversion premium of 32.5%.

Price talk was for a coupon of 1.125% to 1.625% and an initial conversion premium of 27.5% to 32.5%.

While the broader market was weak, Fluor’s new paper was strong with the notes trading as high as 101.125 out of the gate.

They were marked at 100.5 bid, 101 offered with stock flat about one hour into the session.

The notes expanded 1 point dollar-neutral, a source said.

Fluor stock was trading at $34.67, an increase of 1.14%, shortly before 11 a.m. ET.

Hannon Armstrong down outright, flat on swap

HAT Holdings I LLC and HAT Holdings II LLC priced $350 million of five-year green notes exchangeable for Hannon Armstrong stock after the market close on Monday at par with a coupon of 3.75% and an initial conversion premium of 25%.

Pricing came at the cheap end of talk for a coupon of 3.25% to 3.75% and at the midpoint of talk for an initial conversion premium of 22.5% to 27.5%, according to a market source.

The notes were weak out of the gate with the first print 99.

While they traded up to par as stock regained some footing, they were marked at 99.25 bid, 99.5 offered about one hour into the session.

While down on an outright basis, the notes were moving inline dollar-neutral, a source said.

Hannon Armstrong stock was trading at $21.49, a decrease of 1.01%, shortly before 11 a.m. ET.

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