Tech convertibles improve as equities drop; Illumina active; Tilray yield exceeds 9%

By Abigail W. Adams

Portland, Me., Oct. 23 – Technology convertibles were in focus in the secondary space on Tuesday as equity markets saw a volatile session.

Micron Technology Inc.’s 3% convertible notes due 2043 were improving on a dollar-neutral, or hedged, basis as stock dropped more than 5% in intraday trading.

Splunk Inc.’s 0.5% convertible notes due 2023 and 1.125% convertible notes due 2025, Zendesk Inc.’s 0.25% convertible notes due 2023 and Teradyne Inc.’s 1.25% convertible notes due 2023 were also firming on a dollar-neutral basis in active trading with Teradyne set to report earnings post-close.

While the tech sector was active, Illumina Inc.’s 0.5% convertible notes due 2019 were the volume leader with more than $21 million of the bonds changing hands prior to the company’s earnings report.

The cannabis sector remained under pressure on Tuesday with Tilray Inc.’s 5% convertible notes due 2023 sinking to their lowest outright price since hitting the market in early October.

While there was an uptick in trading volume on Tuesday, the secondary space was slow as equity markets saw a broad sell-off after the earnings of key blue chip companies, sources said.

“It’s not a panic. There’s just a lot of dislocation,” a market source said.

The Dow Jones industrial average plummeted as much as 500 points after the market open but pared its losses to close the day down 125.98 points.

The tech heavy Nasdaq was down 160 points, or 2.15% early in the session but closed the day down 31.09 points, or 0.42%.

The Philadelphia semiconductor index was down 37 points, or 3.07%, early in the session but closed the day down 6.59 points, or 0.53%.

The CBOE Volatility index shot up more than 22% early Tuesday but came in as stocks rallied to close the day up 6.82%.

Tech names improve

Tech names were improved on Tuesday as volatility again roiled equity markets.

Micron Technology’s 3% convertible notes due 2023 were gaining dollar-neutral as the heavily hedged, equity-sensitive convertible notes dropped alongside stock.

The 3% notes traded down to 129.625 early Tuesday and were seen trading up to 133.5 in the late afternoon.

The notes were improved by about 20 cents on a dollar-neutral basis, a market source said. About $15 million of the bonds were on the tape by the late afternoon.

Micron stock closed the day at $38.54, a decrease of 3.07%.

Zendesk’s 0.25% convertible notes were improved on an outright and dollar-neutral basis on Tuesday with stock closing the day on positive footing.

The notes were changing hands around 113.5 and were improved about 0.25 point dollar-neutral. Zendesk stock closed Tuesday at $59.31, an increase of 0.97%.

Splunk’s convertible notes were also improved about 0.25 point dollar-neutral, a market source said.

The 0.5% convertible notes due 2023 changed hands at 94.5 in the late afternoon while the 1.125% convertible notes continued to trade around 93.375.

Splunk stock closed the day at $97.21, an increase of 0.22%.

Teradyne’s earnings

Teradyne’s 1.25% convertible notes due 2023 were active and making gains dollar-neutral as the company prepared to report earnings after the market close.

The notes were trading on an outright basis around 119.75 in the mid-afternoon. They were improved about 0.25 point dollar-neutral, a market source said.

Teradyne stock closed Tuesday at $32.20, a decrease of 0.28%.

Illumina in focus

Illumina’s 0.5% convertible notes due 2021 were the major volume mover in the secondary space as the biotech company also prepared to release earnings after the market close.

The notes were seen at 131.5 early in the session and changed hands at 135 shortly before the market close.

The notes were largely moving in line on a dollar-neutral basis, a market source said.

Illumina stock traded as low as $301.00 on Tuesday but closed the day at $313.60, a decrease of 1.14%.

Tilray crosses 9%

Tilray’s 5% convertible notes due 2023 sank to their lowest outright price since hitting the market in early October.

However, the notes now look appealing to outright accounts.

The 5% convertible notes were seen changing hands at 83.5 early Tuesday with the yield to maturity on the notes 9.3% and the premium 30%, a market source said.

The notes traded up to 84 with stock improving as the session progressed.

The yield and premium now make the notes an interesting play for outright players, a market source said.

The notes have been under pressure as Tilray stock tanked in the run up to and aftermath of the legalization of cannabis in Canada, which failed to meet investor expectations.

Stock was down 11% to $109.00 early Tuesday but pared its losses to close the day at $120.07, a decrease of 2.06%.

While the stock is volatile, the notes remain unattractive to hedge players with the borrow rate “outrageous,” a market source said. At negative 57%, the rate “is the highest I’ve seen,” the source said.

Mentioned in this article:

Illumina Inc. Nasdaq: ILMN

Micron Technology Inc. Nasdaq: MU

Splunk Inc. Nasdaq: SPLK

Teradyne Inc. NYSE: TER

Tilray Inc. Nasdaq: TLRY

Zendesk Inc. NYSE: ZEN

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.