Illumina jumps post earnings; Terex up before earnings; RadioShack quiet; PennyMac on tap

By Rebecca Melvin

New York, April 23 - Convertible bond trading picked up on Tuesday as some investors looked to get volatility exposure amidst earnings season. But some market players said it still seemed quiet as it was on Monday.

Illumina Inc.'s convertibles were higher on an outright and dollar-neutral, or hedged, basis after the San Diego-based gene-sequencing company reported a loss for the first quarter due to a patent infringement case that it lost. Excluding one-time items, however, the company beat earnings and revenue estimates. Illumina shares jumped 13%.

Terex Corp.'s convertibles were also in trade and higher on an outright and hedged basis ahead of earnings that were expected to be released after the market close Wednesday.

Intel Corp.'s two convertible bond issues were both in trade and extended gains that have been notched since the Santa Clara, Calif.-based chip giant announced quarterly earnings last week.

RadioShack Corp.'s convertibles, which are due in August, were quiet after the Fort Worth-based consumer electronics retailer reported its fifth consecutive loss.

In the primary market, PennyMac Mortgage Investment Trust launched an offering of $200 million of seven-year exchangeable senior notes after the market close Tuesday, which were seen pricing after the market close Wednesday.

The PennyMac convertibles were talked to yield 5.25% to 5.75% with an initial conversion premium of 20% to 25%, according to market sources.

Stocks were sharply higher through most of the session, except for a brief tumble after investors were spooked by a phony Associated Press Tweet said that explosions had gone off in the White House injuring president Obama.

The Dow Jones industrial average plunged more than 140 points instantly but returned to its initial levels shortly after a follow up Tweet from AP saying its system had been hacked and assurances from While Hose press secretary Jay Carney that the president was fine and the White House unharmed.

Illumina jumps on hedge

Illumina's 0.25% convertibles due 2016 traded at 102.875 bid, 103.25 offered versus an underlying share price of $63.00 on Tuesday. Previously, the bonds were 97.125 bid, 97.625 offered versus a share price of $55.12.

The bonds gained about 1.5 points on swap with a 30% to 35% delta coming into the day. At the end of the day, the delta was seen at 44% to 45% with shares higher, sources said.

Shares rose $7.33, or 13%, to $62.45.

"Illumina is the big trader today; the stock is moving up after earnings and both bonds are up outright and on swap," an East Coast-based buysider said.

Illumina reported a loss in the first quarter after a federal jury found it infringed on a patent belonging to Syntrix Biosystems.

Syntrix said Illumina's beadChip products infringed on a patent belonging to Syntrix. BeadChips are silicon wafers the size of a microscope slide. They are covered in silica beads and DNA molecules that capture gene sequences.

llumina said in March that a jury ruled in favor of Syntrix and ordered Illumina to pay Syntrix $96 million. But the company plans to ask the judge to vacate the finding because it believes the claim lacks merit. But Illumina took a charge of $106.9 million related to litigation during the first quarter.

If one-time items including the legal contingencies are excluded, Illumina said it earned 46 cents per share on revenue of $331 million, which was up 21% from $272.8 million.

Analysts were expecting adjusted net income of 39 cents per share and $311.5 million in revenue.

Terex adds before earnings

Terex's 4% convertibles due 2015 were seen at 187 bid, 187.75 offered versus an underlying share price of $28.75 during the session, according to a New York-based convertibles analyst.

The Terex convertibles trade on swap with a theoretical delta of 90%, the analyst said.

The shares ended higher by 27 cents, or nearly 1%, at $28.73.

The bonds were "particularly active as investors looked to get vol. exposure ahead of earnings," the analyst said.

Intel extends gains

Intel's 2.95% convertibles due 2035 were seen up at 109.75 bid, 110.25 offered versus an underlying share price of $23.29 during Tuesday's session. The bonds were seen higher by about 1.75 points outright.

Intel's longer-dated 3.25% convertibles due 2039 were seen up at 125.75 bid, 106.25 offered versus the same $23.29 share price. That was up about 1.5 points on an outright basis.

Shares of the Santa Clara, Calif.-based chip giant gained 50 cents, or 2.2%, to $23.38.

The Intel convertibles have been trading actively and higher following Intel's earnings release last week.

PennyMac to price

PennyMac, a Calabasas, Calif.-based real estate investment trust, plans to price $200 million of seven-year exchangeable bonds under Rule 144A via Credit Suisse Securities (USA) LLC, BofA Merrill Lynch and Citigroup Global Markets Inc. as joint bookrunners.

The deal, pricing Wednesday, has a $30 million greenshoe. The convertibles are non-callable. There is standard takeover protection, and there is dividend protection in the form of a conversion rate adjustment for dividends paid above $0.57 quarterly.

Proceeds are expected to be used to acquire distressed mortgage loans, to develop correspondent lending business, to repay debt and for general corporate purposes.

Mentioned in this article:

Illumina Inc. Nasdaq: ILMN

Intel Corp. Nasdaq: INTC

PennyMac Mortgage Investment Trust NYSE: PMT

RadioShack Corp. NYSE: RSH

Terex Corp. NYSE: TEX

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