Morning Commentary: Applied Optoelectronics convertible notes price; PG&E higher

By Abigail W. Adams

Portland, Me., Dec. 1 – While the convertibles primary market saw a slow start to the week, it saw a strong finish with $2.28 billion pricing in three deals.

Applied Optoelectronics Inc. priced an upsized $80.2 million of three-year convertible notes after the market close on Thursday with a coupon of 5.25% and an initial conversion premium of 15%.

The refinancing deal was wall-crossed and largely limited to the holders of the company’s outstanding 5% convertible notes due March 15, 2024 with four accounts holding 90% of the issue, a source said.

Proceeds from the transaction were used to repurchase $80.2 million in principal of the company’s 5% convertible notes due 2024 for $81.1 million in cash and 466,368 shares in privately negotiated transactions.

Those holders most likely took down the majority of the new issue, which essentially extended the maturity of the company’s convertible debt, a source said.

The new 5.25% convertible notes were not active in the secondary space and are not expected to be with the issue largely tucked away.

However, PG&E Corp.’s $1.9 billion 4.25% convertible notes due 2027, the largest deal of 2023, remained active with the notes edging higher on a mixed open for equities.

The Dow Jones industrial average was up 66 points, or 0.21%, the S&P 500 index was up 0.09%, the Nasdaq Composite index was down 0.11% and the Russell 2000 index was up 0.99% shortly after 11 a.m. ET.

There was $84 million in reported convertible bond trading volume about one hour into the session with PG&E’s 4.25% convertible notes continuing to dominate the tape.

The notes were up about 0.25 point outright with stock off to start the day.

The notes were trading just north of 101.25 versus a stock price of $17.17 early in the session, according to a market source.

There was $18 million in reported volume.

Shares of PG&E were trading at $17.16, a decrease of 0.058%, shortly before 11 a.m. ET.

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