Morning Commentary: Iconix convertible notes jump on exchange; Western Digital, Endeavour hold par

By Abigail W. Adams

Portland, Me., Feb. 12 – Iconix Brand Group Inc.’s struggling 1.5% convertible notes due 2018 jumped almost 20 points in early trades on Monday after the company announced a privately negotiated exchange agreement.

Iconix will exchange $110 million of its 1.5% convertible notes due March 15, 2018 for new convertible notes due August 2023 that will bear a coupon of 5.75% and an initial conversion premium of 17.5%.

The stock reference price will be determined over a five-day averaging period beginning Feb. 12, provided the price per share is no more than $1.656 or less than $0.844.

There is a 32.5% collar around the Feb. 9 closing price of $1.25, according to an 8-K filing with the Securities and Exchange Commission.

The exchange agreement meets the terms of the company’s second delayed-draw term loan under its senior credit facility. Iconix plans to access additional funds from term loan to retire the remaining outstanding amount of the 1.5% convertible notes at maturity.

The 1.5% convertible notes tanked in November after the New York-based owner, licenser and marketer of consumer brands amended the terms of its credit agreement to prevent default on its 1.5% convertible notes.

The 1.5% notes traded up to 97 early in Monday’s session after trading predominately in the 70 to 80 range since November, according to Trace data. Iconix stock also skyrocketed early Monday to $1.66, an increase of 32.40%.

While the coupon is an enormous increase, interest will be paid in cash, shares, or a combination of both at the company’s option.

The low conversion premium also creates “significant dilution” for common stock, “but bankruptcy might have meant zero,” for common stock holders, a market source said.

While the majority of deals that priced over the past few weeks are now languishing below par, Western Digital Corp.’s 1.5% convertible notes due 2024 continue to hold in active trading.

The 1.5% notes were trading in the 100 to 101 range early in Monday’s session after briefly dipping to 99 in scattered trades on Friday, according to Trace data.

Western Digital stock was up to $81.75, an increase of 1.44% early Monday.

Endeavour Mining Corp.’s 3% convertible notes due 2023 also traded just north of par early in Monday’s session after trading at 99.25 on Friday, according to Trace data.

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