Morning Commentary: Shockwave Medical convertibles in focus on buyout

By Abigail W. Adams

Portland, Me., April 5 – It was another sleepy start to the day in the convertible bond secondary space with equity markets in the green on the heels of the latest U.S. nonfarm payrolls report.

While the report came in much hotter than expected, market players were reading between the lines to keep hope alive for a June rate cut with the deceleration of wage growth seen as a positive, sources said.

The Dow Jones industrial average was up 134 points, or 0.35%, the S&P 500 index was up 0.66%, the Nasdaq Composite index was up 0.88% and the Russell 2000 index was up 0.05% shortly before 11 a.m. ET.

There was $51 million in reported volume about one hour into the session with trading volume, on average, light over the past few weeks.

The average daily trading volume in the secondary space is $750 million; however, the average over the past few weeks has been about $500 million, a source said.

While market players look to the reactivation of the primary market to jumpstart activity in the space, topical news was driving volume on Friday.

Shockwave Medical Inc.’s 1% convertible notes due 2028 were in focus early in the session after news broke that Johnson & Johnson announced it would acquire the company in a deal with an enterprise value of $13.1 billion.

The 1% convertible notes were off slightly on the heels of the announcement with only a modest bump up in stock.

“It was already priced in,” a source said.

The 1% convertible notes were trading just shy of 126 early in the session.

There was $14 million in reported volume.

Shockwave Medical stock was trading at $325.57, an increase of 1.74%, shortly before 11 a.m. ET.

The gains in Shockwave’s stock and convertible notes came the previous week when the Wall Street Journal reported Johnson & Johnson was in active talks with the medical device company.

Johnson & Johnson announced Friday that it would acquire Shockwave for $335 per share in a deal with an enterprise value of $13.1 billion.

The deal would be funded by cash and debt with the convertible notes to be taken out in the transaction, a source said.

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