Morning Commentary: Wolfspeed looks cheap; secondary trading quiet as equities recover

By Abigail W. Adams

Portland, Me., Jan. 31 – The convertibles primary market returned to action on Monday with one new offering on deck.

Wolfspeed Inc. plans to price $500 million of six-year convertible notes after the market close on Monday with price talk for a coupon of 0.25% to 0.75% and an initial conversion premium of 30% to 35%.

The deal was heard to be in the market with assumptions of 350 basis points over Libor and a 42% vol., a source said.

Using those assumptions, the deal looked 1.8 points cheap at the midpoint of talk.

Wolfspeed will mark the second new offering of the month, which has been a brutal one for risk assets.

However, equity indexes opened Monday strong with optimism surrounding earnings alleviating concerns around monetary tightening.

The Dow Jones industrial average was up 9 points, or 0.03%, the S&P 500 index was up 0.78%, the Nasdaq Composite was up 2.12% and the Russell 2000 index was up 0.69% shortly before 11 a.m. ET.

There was $68 million in reported convertibles trading volume about one hour into the session.

Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB) were the most actively traded issue early in the session with the notes gaining on an outright basis alongside stock.

The 1.25% convertible notes were changing hands at 134.25 versus a stock price of $43.31, according to a market source.

There was $8.5 million in reported volume.

Southwest’s stock was changing hands at $43.96, an increase of 2.56%, shortly before 11 a.m. ET.

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