Convertibles secondary market stable despite new issues, increased credit spreads

By Rebecca Melvin and Abigail W. Adams

New York, Nov. 10 – While the past week saw four new issues totaling $1.16 billion in the convertible bond market, the secondary market remained firm, a New York-based market source said on Friday.

“There are deals coming in, but they’re not multi-billion dollar deals taking cash out of the market,” the source said. “Convertibles were flat even though spreads widened.”

High-yield credit spreads increased by about 25 basis points in the past week.

Convertible issues from semiconductor chip manufacturers garnered focus as the sector and its equities were showing resilience amid weaker broader markets.

Cypress Semiconductor Corp.’s recently issued 2% convertible due 2023 continued to climb, with investors making 6 points outright since the deal was priced last week, a market source said.

Micron Technology Inc.’s equity sensitive 3% convertible also climbed in trading during Friday’s session.

Microchip Technology Inc.’s 1.625% convertible due 2025 continues to be a focus for traders with heavy trading throughout the week. The note regained some ground Friday after falling nearly 10 points during the week.

Sarepta Therapeutics Inc.’s new 1.5% convertibles due 2024 continued to dominate trading in the convertibles space on Friday with the notes continuing to make gains after their Thursday debut.

Sarepta in demand

Sarepta’s 1.5% convertibles due 2024 remained in demand during Friday’s session, trading up another 0.75 point to 104.25 after markets opened. Underwriters fully exercised the $95 million greenshoe, boosting the total size of the deal to $570 million.

The Cambridge, Mass.-based biomedical company’s stock also increased, ending the day at $54.16, an increase of 3.81%.

Chipmakers gain steam

Semiconductor companies are making their mark in the convertibles industry, as the sector breaks its cyclical reputation among investors and proves capable of continued growth.

With stock prices in the sector soaring, semiconductor companies are turning toward convertibles and increasingly issuing new paper, a market source said.

Cypress saw its 2% convertibles due 2023 at 106 bid, 106.5 offered early Friday, sources said. Company stock conversely increased to a 52-week high of $16.97, an increase of 1.43%.

Underwriters fully exercised the $20 million greenshoe, bringing the total size of the deal to $150 million, according to an 8-K filing. S&P Global Ratings assigned a B+ issue-level rating to the note.

Micron’s equity-sensitive 3% convertibles due 2043 moved up nearly 2 points in early trading to 154.25, a market source said. The convertible increased another point during the session, ending the day at 155.978.

The Boise, Idaho-based memory chip maker’s stock also made gains, ending the day at $44.79, an increase of 2.97%.

Microchip’s 1.65% convertible due 2025 regained some footing after tumbling during trading on Thursday. The note closed the market at 176.58 after trades the previous day as low as 171, according to Trace data.

The notes opened on Monday at 183.3. Microchip reported its third-quarter earnings on Monday with net sales and gross margins well above guidance. The Chandler, Ariz.-based manufacturer of semiconductors saw its stock climb 0.84% to $91.57 at market close.

Mentioned in this article:

Cypress Semiconductor Corp. NYSE: CY

Microchip Technology Inc. Nasdaq: MCHP

Micron Technology Inc. Nasdaq: MU

Sarepta Therapeutics Inc. Nasdaq: SRPT

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