New, upsized Microchip trades actively around issue; old Microchip flat; LinkedIn comes in

By Rebecca Melvin

New York, Feb. 6 – Microchip Technology Inc.’s new 1.625% convertibles traded actively Friday at around their issue price after the Chandler, Ariz.-based semiconductor maker priced an upsized $1.5 billion of the senior subordinated notes at the rich end and midpoint of talked terms.

The new issue was the single busiest name in the market, even if the pricing move was negligible.

“I’m bored,” a New York-based trader said. The new deal was “all that people were really looking at, and it was at issue price, dollar neutral.”

Microchip’s older 2.125% convertibles due 2037 were also active and traded at a small premium to parity, which was flat to slightly weaker compared to Thursday.

Proceeds of the new Microchip deal were used to take out $575 million face value of the old issue, or half of the $1.15 billion outstanding, for a purchase price of $1,137,000,000.

Also in the primary market, Immunomedics Inc.’s 4.75% convertible was flat to slightly higher after the Morris Plains, N.J.-based biopharmaceutical company priced $85 million of the five-year notes at the rich end and midpoint of talked terms.

The new Immunomedics bond traded at 100.25 against shares that were flat to slightly higher.

Back in secondary dealings, earnings remained a catalyst.

LinkedIn Corp.’s convertibles jumped on an outright basis, but came in slightly on a dollar-neutral, or hedged, basis after the Mountain View, Calif.-based business-oriented social networking service reported strong fourth-quarter results and received several stock upgrades and price target hikes.

Twitter Inc.’s convertibles jumped on an outright basis along with a 15% surge in the underlying shares, but were unchanged on a dollar-neutral basis, as stock investors cheered the San Francisco-based social media company’s quarterly results.

A particularly strong January jobs report boosted expectations that the Federal Reserve will raise interest rates sooner than later, with many anticipating the first rate hike in June. The news left equity investors ambivalent, and Treasuries were down with the yield up, gold was down and oil was up.

U.S. nonfarm payrolls grew by a seasonally adjusted 257,000 jobs in January, the Labor department said Friday. The unemployment rate ticked up to 5.7% from 5.6% as more people entered the more appetizing job market.

The report also raised payroll levels for the previous two months. The report showed payrolls climbed 329,000 in December, up from an initial estimate of 252,000; and November’s overall job gain was revised up from an initial 353,000 to 423,000.

The S&P 500 stock index shed 7.05 points, or 0.3%, to 2,055.47; the Dow Jones industrial average lost 60.59 points, or 0.3%, and the Nasdaq stock index ended down 20.70 points, or 0.4%, to 4,744.40.

New Microchip flat to higher

Microchip’s upsized 1.625% convertibles traded slightly above par at 100.25 and below par at 99.5, depending where shares were trading.

The deal “did OK,” a New York-based trader said, quoting the paper up 0.125 point to 0.25 point in the early going.

A second New York trader said the deal was “at issue.”

It performed more or less as expected given that it was in the gray market ahead of final terms being fixed at par to 100.5.

The convertibles, which were upsized to $1.5 billion from $1 billion, had been talked to yield 1.625% to 2.125% with an initial conversion premium of 37.5% to 42.5%.

Joint bookrunners were J.P. Morgan Securities LLC, Wells Fargo Securities LLC, BofA Merrill Lynch, BMO Capital Markets Corp., HSBC Securities (USA) Inc. and U.S. Bancorp Investments Inc.

Senior co-managers were BBVA Securities Inc., DBS Bank Ltd., Fifth Third Securities Inc., MUFG and SunTrust Robinson Humphrey Inc.

BB&T Capital Markets was the co-manager.

Microchip’s new 1.625% convertibles due 2025 changed hands at 99.475, according to Trace data, and also a little above par as shares toggled either side of the flat line.

Shares closed down 40 cents, or 0.8%, at $48.64.

Old Microchips flat to higher

The existing Microchip 2.125% bond due 2037 traded at about parity plus 0.375 point, a trader said.

That was not far off from where they closed on Thursday, although the issue had bounced around Wednesday into Thursday after the deal as launched.

“They are right back at plus or minus parity. It may be the scarcity value,” a trader said, referring to the fact that proceeds of the new deal were used to take out half of the issue.

The market is looking at what high-dollar paper might be taken out next, and the list includes Gilead Sciences Inc., Mylan Inc., Affymetrix Inc., Salix Pharmaceuticals Ltd., Endo International plc, Host Hotels & Resorts Inc., among others.

But on Friday there was not much high-dollar paper in trade.

“None of the cash-flow names are trading,” a market source said. “But people are looking at what will be taken out next.”

LinkedIn comes in slightly

LinkedIn’s 0.5% convertibles due 2019 traded up to about 115, which was up nearly 4 points on an outright basis, but on a hedged basis, the bonds came in about 0.25 point, a New York-based trader said.

LinkedIn shares ended up $25.43, or 11%, to $263.40 after jumping to as high as $272.95 intraday.

Several analyst upgraded the shares and boosted their price targets to near $300.00 after LinkedIn posted results that beat estimates.

Adjusted fourth-quarter earnings came in at 61 cents per share, which was up from 39 cents per share in the year-earlier period.

Revenue jumped 44% to $643.4 million and beat estimates for $617 million of revenue.

Looking ahead, LinkedIn guided current quarter results in line with consensus estimates of between $618 million to $622 million.

LinkedIn ended the quarter with 347 million members, or 15 million more than the prior quarter and up 25% from a year earlier.

Cowen & Co. raised its target to $290 from $260, citing fourth-quarter results that beat across the board and operating metrics that are strong.

On Tuesday, the LinkedIn convertibles added on a hedged basis after Goldman Sachs upgraded the shares to “conviction buy” from “buy” and raised its price target $30.00 to $280.00 from $250.00.

The bonds traded after that at 106.70 bid, 107 offered against an underlying share price of $229.81.

Mentioned in this article:

Immunomedics Inc. Nasdaq: IMMU

LinkedIn Inc. Nasdaq: LNKD

Microchip Technology Inc. Nasdaq: MCHP

Twitter Inc. Nasdaq: TWTR

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