Apple suppliers Microchip Technology, Western Digital notes active; Ensco better bid

By Abigail W. Adams

Portland, Me., Jan. 3 – Short-duration convertible notes remained the theme of the secondary space as equities saw a brutal session with Apple Inc. dragging markets lower after slashing its sales forecast due to slowing iPhone sales in China.

The Dow Jones industrial average closed the day down 660 points, the tech heavy Nasdaq closed the day down 3.04% and the PHLX Semiconductor index closed the day down 5.94%.

While Apple stock and the companies in its supply chain took a beating, the convertible notes of major Apple suppliers were not trading in the secondary space, a market source said.

However, Western Digital Corp. and Microchip Technology Inc. were the exception.

While down outright, Microchip’s convertible notes were trading largely in line on a dollar-neutral, or hedged, basis.

Ensco plc’s 3% convertible notes due 2024 remained active with the notes making gains with better buyers in the market.

While not active on Thursday, Acorda Therapeutics Inc.’s 1.75% convertible notes due 2021 saw a large dollar-neutral expansion over the past two weeks following FDA approval of a treatment for Parkinson’s disease.

Clovis Oncology Inc.’s convertible notes saw a slight dollar-neutral expansion as stock tanked after Bristol-Myers’ buyout of Celgene.

The supply chain

There are about a half dozen Apple suppliers in the convertibles universe.

However, few of them saw trading activity on Thursday with the exception of Western Digital and Microchip, a market source said.

Western Digital’s 1.5% convertible notes due 2024 were changing hands at about 80.875, a market source said. They were previously trading in an 81 to 82 range.

There were about $6 million of the bonds on the tape.

Western Digital stock closed Thursday at $35.65, a decrease of 6.82%.

However, with the premium on the notes over 200%, they trade on a very light hedge, a market source said.

About 13% of Western Digital’s revenue in fiscal year 2018 came from Apple, another source said.

Microchip’s 1.625% convertible notes due 2027 and 1.625% convertible notes due 2025 were also active.

The 1.625% convertible notes due 2027 dropped 4 points outright to 93. The 1.625% convertible notes due 2025 dropped about 7 points outright to 131.25.

The notes were trading largely in line dollar-neutral, a market source said.

Microchip stock closed Thursday at $66.32, a decrease of 7.05%.

Ensco gains

Ensco’s 3% convertible notes due 2024 remained active on Thursday with the notes making gains on an outright basis.

The 3% notes traded up to 69.5 on Thursday after trading on a 67 handle on Wednesday, sources said.

The yield to maturity was 11%. The notes were trading with an 11.81% yield to maturity on Wednesday.

There were better buyers in the market on Thursday, a market source said.

The offshore drilling contractor has been under pressure alongside the broader energy sector since October when crude oil futures collapsed.

The barrel price of WTI crude oil for February delivery continued to post gains on Thursday, jumping another 1% to $47 in intra-day trading.

Prior to the sell-off in crude oil in mid-October, Ensco’s 3% notes were trading north of par, according to Trace data.

Acorda expands

While not active on Thursday, Acorda Therapeutics’ 1.75% convertible notes due 2021 saw a large dollar-neutral expansion over the holiday season.

The notes were trading between 84.187 and 84.375 on Wednesday versus a stock price of $15.90, according to a market source.

In the run up to Christmas the notes were trading at 76.65 versus an equity price of $13.30.

Over the past 10 days, the notes expanded about 5.5 points dollar-neutral with a delta of 35% to 40%, a market source said.

“The market’s been so crappy, it’s surprising,” a market source said.

Acorda stock jumped during the Christmas week after the Food and Drug Administration approved the use of its Parkinson’s drug Inbrija.

Clovis expands

Clovis Oncology’s convertible notes were active and expanding dollar-neutral as stock tanked during Thursday’s session.

The 1.5% convertible notes due 2025 were changing hands between 70.75 and 70.875, according to Trace data. The 2.5% convertible notes due 2021 were trading around 85.625.

The notes were expanded about 0.5 point to 0.75 point dollar-neutral, a market source said.

Clovis stock closed Thursday at $17.66, a decrease of 8.92%.

Clovis stock tanked on Thursday after Bristol-Myers Squibb announced it would buy Celgene in a $74 billion deal.

There was speculation that Bristol-Myers was eyeing Clovis for a potential buyout, a market source said.

Mentioned in this article:

Acorda Therapeutics Inc. Nasdaq: ACOR

Clovis Oncology Inc. Nasdaq: CLVS

Ensco plc NYSE: ESV

Microchip Technology Inc. Nasdaq: MCHP

Western Digital Corp. Nasdaq: WDC

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