Morning Commentary: Cree convertibles eyed; Carnival, Dick’s Sporting Goods drop outright

By Abigail W. Adams

Portland, Me., April 16 – While some had predicted a quiet end to the week after the onslaught of new deal activity, the convertibles primary market remained active on Thursday with one more overnight deal on deck.

Cree Inc. plans to price $500 million of six-year convertible notes after the market close on Thursday with price talk for a coupon of 1.75% to 2.25% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The deal was being marketed with assumptions of 650 basis points over Libor and a 40% vol., a source said.

Using those assumptions, sources pegged the deal about 4.75 points cheap at the midpoint of talk.

Cree is using a portion of the proceeds to repurchase $200 million of the principal amount of its 0.875% convertible notes due 2023.

Cree priced a $575 million issue of the 0.875% notes in August 2018. While the notes have performed well since pricing, they plummeted in March alongside the broader convertibles market.

The notes traded as low as 86 in mid-March but last traded just shy of 95 on April 14, according to Trace data.

Meanwhile, it was a quiet day in the secondary space as equities fluctuated between gains and losses on the heels of another dismal jobs report.

There was about $70 million in reported volume a little over one hour into Thursday’s session.

Carnival Corp.’s 5.75% convertible notes due 2023 continued to top the volume charts. However, the notes were coming in on an outright basis.

The notes dropped almost 6 points outright to change hands at 130 early in the session.

Carnival stock was changing hands at $11.75, a decrease of 5.39%, shortly before 11 a.m. ET.

Dick’s Sporting Goods, Inc.’s newly priced 3.25% convertible notes due 2025 sank further below par with stock again trending lower early Thursday.

The 3.25% notes were changing hands at 98.25 about one hour after the opening bell.

Dick’s stock was changing hands at $24.60, a decrease of 2.03%, shortly before 11 a.m. ET.

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