Cree convertibles eyed, outstanding issue active; Carnival, Dick’s Sporting Goods weaken

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.

The deal was heavily oversubscribed and is believed to be pricing on the rich end of coupon talk and richer than premium talk, sources said.

The new offering kickstarted activity in the company’s outstanding 0.875% convertible notes due 2023, which were trading flat on an outright basis as stock dropped.

Meanwhile, it was a relatively quiet day in the secondary space as equities fluctuated between gains and losses in the wake of another dismal jobs report with last week’s unemployment filings 5.2 million.

There was about $70 million in reported volume a little over one hour into Thursday’s session and $450 million on the tape about one hour before the market close.

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.

Dick’s Sporting Goods, Inc.’s newly priced 3.25% convertible notes due 2025 sank further below par their second day in the secondary space and were contracting dollar-neutral.

Cree eyed

Cree 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.

The deal saw heavy demand during bookbuilding and was heard to be as much as 3x oversubscribed at the midpoint of talk.

However, the deal was expected to price on the rich end of coupon talk and richer than premium talk, a source said.

The notes were expected to come with an initial conversion premium of 35%, the source said.

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

The new offering jumpstarted activity in the 0.875% notes, which were trading largely flat as stock dropped.

The 0.875% notes were changing hands just shy of 95 during Thursday’s session. The notes were among the most actively traded during the session with $9 million in reported volume.

Cree stock traded to a high of $38.03 and a low of $35.54 before closing the day at $35.71, a decrease of 7.94%.

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 before staging a rebound in April, according to Trace data.

Carnival down outright

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

The notes dropped more than 6 points outright. They traded as low as 128.75 but closed the day just shy of 130.

The bonds saw more than $40 million in reported volume during the session.

Carnival stock traded to a low of $11.37 and a high of $12.29 before closing the day at $11.85, a decrease of 4.28%.

Stock was trading off following news the cruise line operator would be delaying operations until the end of June.

The company is also facing a criminal probe in Australia and several lawsuits related to its response to the coronavirus outbreak on its ships.

Dick’s notes contract

Dick’s Sporting Goods’ newly priced 3.25% convertible notes due 2025 sank further below par and were contracting dollar-neutral their second day in the secondary space.

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

They continued their downward momentum and were seen changing hands at 97.25 in the late afternoon.

They closed the day wrapped around 97.875 and were contracted 0.5 point dollar-neutral, a source said.

The notes remained active with more than $23 million in reported volume during Thursday’s session.

Dick’s stock traded to a low of $24.13 and a high of $25.25 before closing the day at $24.75, a decrease of 1.43%.

Mentioned in this article:

Carnival Corp. NYSE: CCL

Cree Inc. Nasdaq: CREE

Dick’s Sporting Goods, Inc. NYSE: DKS

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