Morning Commentary: PG&E mandies eyes; Xeris on deck; American Airlines, Livent lower

By Abigail W. Adams

Portland, Me., June 25 – The convertibles primary market stood poised to round out another high-volume week with two offerings set to price after the market close.

Xeris Pharmaceuticals, Inc. plans to price $60 million of five-year convertible notes in a registered offering, which coincides with a $20 million common stock offering.

Price talk was for a coupon of 4.5% to 5% and an initial conversion premium of 12.5% to 17.5%, according to a market source.

The small deal was not on the radar of sources queried.

After a two-day marketing period, PG&E Corp.’s $1.5 billion offering of $100-par three-year equity units is also slated to price after the market close.

The deal looked cheap based on underwriters’ assumptions.

Meanwhile, the secondary space braced for another sloppy session as equities continued to trade off on greater-than-expected unemployment numbers.

Several recent deals were struggling with their equities under pressure.

American Airlines Group Inc.’s 6.5% convertible notes due 2025 continued their downward trajectory.

Livent Corp.’s recently priced 4.125% convertible notes due 2025 also sank further below par early in Thursday’s session.

PG&E eyed

After a multi-day marketing period, PG&E’s $1.5 billion $100-par three-year equity units are set to price after the market close on Thursday.

The units, which consist of a prepaid forward stock purchase contract and a zero-coupon U.S. treasury strip, are talked with a dividend of 5.5% to 6% and a threshold appreciation premium of 17.5% to 22.5%.

The deal was heard to be marketed with assumptions of Libor flat and a 27% to 30% vol. skew., which looked 7.625 points cheap at the midpoint of talk, a source said.

Much like the T-Mobile mandatory, the deal was most likely structured so the treasury strip covered the cost of the dividend payments to prevent any credit exposure to the company, the source said.

The deal is pricing concurrently with a $4 billion common stock offering.

Struggling

Several recent deals continued to struggle in the secondary space as their equity sold off.

American Airlines’ 6.5% convertible notes due 2025 continued to trade lower in high-volume activity.

The 6.5% notes traded as low as 89, a market source said.

There was $13 million on the tape about one hour into the session.

American Airlines stock traded down to $12.62, a decrease of 3.26%, shortly before 11 a.m. ET.

While volume was light, Livent’s 4.125% convertible notes due 2025 also sank further below par.

The 4.125% notes traded as low as 96.875 early Thursday.

Livent’s stock traded down to $5.95, a decrease of 4.19%, shortly before 11 a.m. ET.

Both American Airlines’ and Livent’s convertible notes priced at par after the market close on Monday.

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