Illumina hits the market, leads trading; Tesla active; Western Digital down outright

By Abigail W. Adams

Portland, Me., Aug. 17 –The secondary space on Friday was relatively quiet with Illumina Inc.’s convertible notes the focus of activity after the biotech company priced a new offering.

Illumina priced $650 million of five-year convertible notes after the market close on Thursday. The new notes dominated trading activity in the secondary space with the notes up on an outright and dollar-neutral basis.

Illumina’s 0% convertible notes due 2019 and 0.5% convertible notes due 2021 were the next most actively traded bonds in the space.

Illumina’s convertible notes accounted for about half of the total trading volume on the tape by late afternoon.

Tesla Inc.’s convertible notes were also active as the company’s stock took a hit after CEO Elon Musk’s tell-all interview with the New York Times.

The notes were dropping outright but holding dollar-neutral, a market source said.

Western Digital Corp.’s 1.5% convertible notes due 2024 reached their lowest outright price since the $1.1 billion deal hit the market in January.

However, the notes continued to trade rich, a market source said.

Illumina dominates

Illumina’s convertible notes were the focus of the secondary space on Friday after the biotech company’s newly priced deal hit the market.

Illumina priced $650 million of five-year notes with a coupon of 0% and an initial conversion premium of 40% after the market close Thursday.

Pricing matched talk for a coupon of 0% and came at the midpoint of talk for an initial conversion premium of 37.5% to 42.5%.

Illumina’s new 0% notes accounted for $73 million of the $133 million bonds on the tape early in the session. Trading volume of the new notes reached $158 million by the late afternoon.

The notes were wrapped around 101 early in the session and were seen changing hands at 101 5/8 later in the afternoon, sources said.

The notes were seen expanded about 2 points dollar-neutral.

While sources pegged the deal rich, it was multiple times oversubscribed during book building, a source said.

Illumina is an investment-grade company, and the bonds may receive an investment-grade rating.

“It’s impossible to find IG converts,” a market source said.

The demand drove the pricing of the notes with the deal most likely attracting crossover equity and IG investors, the source said.

While Illumina’s new 0% notes eclipsed all other trading activity, the company’s 0% notes due 2019 and 0.5% notes due 2021 were the second and third most actively traded notes in the secondary space on Friday.

Illumina’s 0% convertible notes due 2019 were seen changing hands at 131.25 versus an equity price of $325.40 in the late afternoon with about $58 million of the bonds on the tape.

Illumina’s 0.5% convertible notes due 2021 were seen changing hands at 140 early in the session but dropped to trade at 138 versus an equity price of $325.68 later in the afternoon, sources said.

About $22 million of the bonds were on the tape by the late afternoon.

Proceeds from the new convertible notes offering may be used for the repayment of the 0% convertible notes.

Illumina stock closed Friday at $325.88, a decrease of 0.34%.

Tesla’s tear-jerker

While Illumina was the major news story in the convertibles space, Tesla’s convertible notes were active with CEO Elon Musk again dominating headlines.

The convertible notes were dropping outright alongside stock after Musk stated in an interview with the New York Times his tweet about taking the company private with funding secured had not been reviewed before it was posted.

Tesla’s 2.375% convertible notes 2022 dropped about 7 points outright. They were seen trading just north of 110.125 versus an equity price of $307.44 late in the afternoon.

The 0.25% convertible notes were down about 3 points outright. They were seen trading at 102.38 versus an equity price of $307.14.

The 1.25% convertible notes due 2021 were down about 5.5 points outright. They were seen trading at 103.625 versus an equity price of $306.31.

While the notes were down outright they were holding up well dollar-neutral, a market source said.

SolarCity Corp.’s 1.625% convertible notes due 2019 were under pressure with the notes dropping about 4 points to trade at 90.

Tesla shares closed Friday at $305.50, a decrease of 8.93%.

Musk is facing increased scrutiny for his tweet about taking the company private with the Securities and Exchange Commission subpoenaing Tesla for information on the matter, Bloomberg reported.

Western Digital trades rich

Western Digital’s 1.5% convertible notes due 2024 hit their lowest outright level over the past week since pricing in January with stock trending downward over the past two months.

The 1.5% convertible notes were seen trading at 95.9 versus an equity price of $64.53 on Friday, according to a market source.

Western Digital stock closed Friday at $64.63, a decrease of 0.66%.

The notes dropped into the 95 range at the start of the week. While the notes hit their lowest outright level since pricing, they were still trading a couple points rich, a market source said.

With the decline in Western Digital’s stock, the notes now have an 82% premium, a market source said.

With the yield to maturity and the hefty premium, the notes should be trading in the 92 to 93 range, the source said.

Western Digital’s stock was $87.08 when the convertible notes priced on Jan. 30.

Mentioned in this article:

Illumina Inc. Nasdaq: ILMN

Tesla Inc. Nasdaq: TSLA

Western Digital Corp. Nasdaq: WDC

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