Innoviva convertibles eyed; Lucid losses mount; Peabody gains continue; Snap active

By Abigail W. Adams

Portland, Me., March 2 – The convertibles primary market returned to action on Wednesday with one new offering on deck.

Innoviva Inc. plans to price $200 million of six-year convertible notes after the market close on Wednesday.

The deal looked cheap based on underwriters’ assumptions and was believed to be pricing toward the rich end of talk.

Meanwhile, it was another quiet day in the convertibles secondary space as equities rebounded strongly from Tuesday’s sell-off.

The Dow Jones industrial average closed the day up 596 points, or 1.79%, the Nasdaq Composite closed up 1.62%, the S&P 500 index closed up 1.86% and the Russell 2000 index closed up 2.51%.

The tech sector and high-growth stocks underperformed early in the session with the Nasdaq briefly in negative territory as Federal Reserve chairman Jerome Powell addressed Congress, giving more insight into the central bank’s rate hike schedule.

Powell signaled the Fed would stay the course with a March rate hike, voicing support for a 25-bps increase but preparing the market for more aggressive rate hikes as the year progressed.

While growth stocks were negative following the announcement, they improved as the session progressed.

Peabody Energy Corp.’s 3.25% convertible notes due 2028 continued to skyrocket in active trading after the coal producer announced its foray into renewable energy.

However, losses continued to mount for Lucid Group Inc.’s 1.25% convertible notes due 2026 with the notes contracting further during Wednesday’s session.

Snap Inc.’s 0.125% convertible notes due 2028 were active with the notes briefly dropping below par before paring their losses alongside stock.

Innoviva eyed

Innoviva plans to price $200 million of six-year convertible notes after the market close on Wednesday with price talk for a coupon of 2.125% to 2.625% and an initial conversion premium of 30% to 35%.

The deal was heard to be in the market with assumptions of 500 basis points over Libor and a 35% vol., a source said.

Using those assumptions, the deal looked 2.75 points cheap at the midpoint of talk.

While the credit spread seemed on target for the biopharmaceutical company, the vol. assumptions seemed high with a vol. below 30% more reasonable, a source said.

However, the refinancing deal played to solid demand with books closing in the early afternoon and talk narrowing to the tight end of the range.

Tightened talk was for a coupon of 2.125% to 2.375% and an initial conversion premium of 32.5% to 35%.

Innoviva is a well-known name in the convertibles universe with two outstanding issues.

Proceeds from the current offering will be used to repurchase for cash a portion of the company’s 2.125% convertible notes due 2023.

Innoviva issued $287.5 million of the 2.125% notes in 2013 under its former name Theravance Inc.

Peabody improves

Peabody’s 3.25% convertible notes due 2028, the most recent issue to price, continued its parabolic rise in the secondary space.

The notes gained 10 points outright with stock up more than 10%.

They were changing hands at 128.5 in the late afternoon.

Peabody’s stock traded to a low of $19.43 and a high of $21.50 before closing the day at $20.81, an increase of 10.93%.

The coal company’s stock has seen strong upward momentum amid the surge in crude oil futures as the Ukrainian conflict threatens global oil supply.

The energy company’s stock received an additional boost after it announced a foray into renewable energy.

The company announced a joint venture on Tuesday to develop solar energy on its former coal mine sites in Indiana and Illinois.

Peabody priced a $275 million offering of 3.25% convertible notes at par on Feb. 24. The greenshoe was recently exercised in full, lifting the total size of the deal to $320 million.

Lucid losses mount

Losses continued to mount for Lucid’s 1.25% convertible notes due 2026 following disappointing earnings.

The 1.25% notes traded down to a 73-handle mid-session. However, they pared their outright losses as stock improved as the session progressed.

The notes were changing hands at 74.5 heading into the market close.

They contracted another 0.25 point dollar-neutral, a source said.

Lucid’s stock traded to a low of $23.60 and a high of $24.77 before closing the day at $24.58, a decrease of 1.64%.

The notes sank about 1 point dollar-neutral on Tuesday as the EV company’s stock sank double digits following disappointing earnings.

Snap active

Snap’s 0.125% convertible notes due 2028 gave back their outright gains on Wednesday and again sank below par in intraday activity with stock under pressure during Wednesday’s session.

The notes traded down to a 99-handle early in the session. However, they improved as the session progressed and closed the day above par.

Snap’s stock traded to a high of $38.12 and a low of $35.75 before closing the day at $37.37, a decrease of 1.24%.

Snap was among the high-flyers that were under pressure during Wednesday’s session.

Mentioned in this article:

Innoviva Inc. Nasdaq: INVA

Lucid Group Inc. Nasdaq: LCID

Peabody Energy Corp. NYSE: BTU

Snap Inc. NYSE: SNAP

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