Convertibles secondary sees post-Fed ‘lift-a-thon’; Ares eyed; Enphase, Guidewire up

By Abigail W. Adams

Portland, Me., July 27 – It was a busy day for markets on Wednesday with earnings reports pouring in and the Federal Reserve announcing its widely anticipated 75 basis point rate increase.

While activity was subdued early in the session with equity indexes holding onto a strong open, Federal Reserve chair Jerome Powell’s press conference sparked a buying frenzy with fears about an economic recession and an overly aggressive rate hike schedule temporarily assuaged.

“It’s a lift-a-thon,” a source said.

The Dow Jones industrial average closed Wednesday up 436 points, or 1.37%, the S&P 500 index closed up 2.62%, the Nasdaq Composite index closed up 4.06%, and the Russell 2000 index closed up 2.39%.

With a positive response to the Federal Reserve’s announcement, sources were hopeful the primary market would return to action with some new deals coming soon.

However, the primary market remained dormant on Wednesday with a heavy slate of earnings, fresh unemployment data and the second-quarter gross domestic product number set to be released prior to Thursday’s open.

Trading volume remained thin even amid the market rally with $80 million of convertibles trading on the tape about one hour into the session and $387 million on the tape about one hour before the market close.

Earnings-related news remained a driving force of trading activity.

Ares Capital Corp.’s 4.625% convertible notes due 2024 (Baa3/BBB-) were in focus after the specialty finance company announced earnings although with little movement in price.

Enphase Energy Inc.’s convertible notes made strong gains as stock surged following earnings.

Guidewire Software Inc.’s 1.25% convertible notes due 2025, an issue that rarely trades, was on the rise in active trading with a large swap seller in the market.

Apellis Pharmaceuticals Inc.’s 3.5% convertible notes due 2026 became the subject of the latest exchange in the secondary space with theories diverging as to why the company flushed out the notes.

Ares’ earnings

Ares Capital’s 4.625% convertible notes due 2024 were in focus after the specialty finance company reported earnings.

However, the notes saw little price movement amid the heavy volume.

The 4.625% notes were seen at 107.375 versus a stock price of $19.75 early in the session.

The notes closed the day at 108.

There was $24 million in reported volume with several large $5 million plus trades on the tape, a source said.

Ares’ stock traded to a low of $19.43 and a high of $19.88 before closing the day at $19.74, an increase of 0.97%.

Ares beat expectations on both the top and bottom lines with earnings of 46 cents per share versus analyst estimates for 44 cents and revenue of $479 million versus expectations for revenue of $466.21.

Enphase better

Enphase’s convertible notes were making gains on an outright and dollar-neutral basis as stock surged following a large earnings beat.

Enphase’s 0% convertible notes due 2026 jumped almost 9 points outright with stock up almost 18%.

The notes were trading just shy of 112.5 versus a stock price of $252.91, according to a market source.

There was $15 million in reported volume.

Enphase’s 0% convertible notes due 2028 also gained almost 9 points outright. They were changing hands at 114.125 versus a stock price of $249.29 in the late afternoon.

There was $9 million in reported volume.

Both tranches expanded dollar-neutral on the move up, a source said.

Enphase’s stock traded to a low of $229 and a high of $257.55 before closing the day at $254.77, an increase of 17.89%.

Stock surged after a large earnings beat with the manufacturer of solar microinverters and battery energy storage products posting earnings per share of $1.07 versus analyst expectations for earnings of $0.85 and revenue of $530.20 versus analyst expectations for revenue of $505.40.

Guidewire gains

Guidewire’s 1.25% convertible notes due 2025, a largely illiquid issue, was on the rise in active trading on Wednesday with a large swap seller in the market.

The 1.25% convertible notes rose 2 points outright with stock up more than 3%.

The notes were changing hands at 95.625 versus a stock price of $74.48 in the late afternoon.

The notes rose about 0.5 points dollar-neutral.

There was $13 million in reported volume.

Guidewire’s stock traded to a low of $74.24 and a high of $76.09 before closing the day at $75.86, an increase of 3.38%.

Apellis’ exchange

Apellis’ 3.5% convertible notes due 2026 became the latest issue to get flushed out through an exchange with varying theories as to why the company took action to close out the longer-dated notes.

The company exchanged $75.6 million of the outstanding principal amount of the notes for shares at a conversion ratio of 20.2724.

The notes were taken out with about a 20-point premium to parity, a source said.

“That’s a really decent point spread,” a source said.

The exchange leaves about $144 million of the notes outstanding.

The notes were changing hands at 168.375 versus a stock price of $55.96 late Wednesday afternoon.

There was $6 million in reported volume.

The notes were up about 1 point dollar-neutral, a source said.

Apellis’ stock traded to a low of $53.91 and a high of $57.41 before closing the day at $57.40, an increase of 3.07%.

The company was retiring some of its convertible debt long before necessary given the longer-dated maturity of the notes.

Some hypothesized the exchange was undertaken to help reduce the biopharmaceutical company’s cash burn, which is high.

The company may also be cleaning up its balance sheet to make it a more attractive acquisition target, a source said.

Mentioned in this article:

Apellis Pharmaceuticals Inc. Nasdaq: APLS

Ares Capital Corp. Nasdaq: ARCC

Enphase Energy Inc. Nasdaq: ENPH

Guidewire Software Inc. NYSE: GWRE

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.