Morning Commentary: New Microchip looks cheap ahead of final terms; old Microchip trading actively

By Rebecca Melvin

New York, Feb. 5 – Microchip Technology Inc.’s new and old convertibles were in focus in early trading on Thursday after the Chandler, Ariz.-based semiconductor maker launched a $1 billion new deal late Wednesday.

The new Microchip convertible was looking cheap using a credit spread of 400 basis points over Libor and 20% vol., a Connecticut-based trader said. Using those inputs at the midpoint of talk, the deal was worth 103.1, he said.

A second source said that 400 bps credit spread was too wide.

Microchip’s existing 2.125% convertibles due 2037, which will be taken out with proceeds of the new deal, traded up on an outright basis in active dealings, adding 5 points or 6 points to 190, according to Trace data.

The old notes looked flat to better on a parity basis. One source said they were unchanged while a second source said that the bonds were now at parity plus 1 point, up from parity plus 0.5 point bid on Wednesday.

There is $1.15 billion of the older bond outstanding.

In addition to Microchip, a second, much smaller deal is in the market. Morris Plains, N.J.-based biopharmaceutical company Immunomedics Inc. plans to price $85 million of five-year convertible senior notes after the market close to yield 4.25% to 4.75%, and with an initial conversion premium of 25% to 30%.

Immunomedics shares fell 64 cents, or 13%, in the early going to $4.24.

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