Convertibles muted by Yom Kippur holiday; high-grade names in focus; Illumina drops

By Rebecca Melvin

New York, Sept. 23 – Wednesday’s trading activity in U.S. convertibles was muted by the Yom Kippur holiday, and about the only notable aspect of trading was the fact that there were some sellers in a few investment-grade names, market players said.

IG sellers marked a switch from earlier in the week when there were buyers of IG-quality names amid a flight-to-quality trade.

Otherwise, “there’s nothing going on,” a New York-based trader said of Wednesday’s session. “It’s been the quietest few days in a while.”

A bulk of the action as of mid-morning was centered on “higher-grade stuff,” such as LAM Research Corp., Illumina Inc. and Tesla Motors Inc., a second New York-based trader said.

But even there, he said the moves in that paper were “trendless” given the low volume.

In terms of the stocks underlying those convertible securities, they were trading mixed, lending credence to the “trendless” characterization.

There was also some trading in business development companies including Ares Capital Corp., and SunEdison Inc.’s complex of convertible paper all traded down with lower shares that sank hard in the last hour, leaving the common stock down 10% on the day.

A trader also noted that oil and gas paper – which had been mostly weaker Tuesday amid a broader sell-off in the markets, including commodities – was mixed at mid-morning.

But around midday on Wednesday, crude oil prices turned decidedly lower, with the closing mark for West Texas Intermediate crude for November delivery down $1.62, or 3.5%, at $44.74.

Equities were also weak. Moves to the positive in the early going were erased by midday, leaving the major indices fractionally lower.

The Dow Jones industrial average settled down 50 points, or 0.3%, at 16,280.43; the S&P 500 stock index ended down 3.98 points, or 0.2%, at 1,938.76 and the Nasdaq stock market shed 3.98 points, or less than 0.1%, to end at 4,752.74.

Heading into the end of the week, traders hope that activity will pick up. They also anticipate that the primary market will pick up, helping fuel the convertibles market overall.

The fact that the planned mandatory convertible deal of Weatherford International plc was pulled late Monday wasn’t expected to put a damper on the overall primary.

That was one off, a trader said regarding the offering of mandatories that was expected to be about $750 million in size with a concurrent offering of common stock to equal $1 billion in total.

LAM, Illumina pulled lower

LAM’s 1.25% convertible notes due 2018 were straddling 125, unchanged on the day at late morning. But against lower shares, the paper closed around 123.75.

Illumina’s 0.5% convertible notes due 2021 were better around midday at 121 versus previous levels around 119. But they printed last with a 116 handle, according to Trace data.

In the early going, “it looked like they went out at good prices,” a trader said of the prices at which the better-quality paper changed hands. But pressure from further selling in stocks at late afternoon pressured the convertibles.

The common shares of Illumina, the San Diego-based developer of genetic research tools, closed at the lows at $189.93, which was down $3.16, or 1.6%. Consequently, the Illumina convertibles printed last at 116.2, according to Trace data.

LAM’s common shares ended down $1.95, or 3%, at $63.69.

But Tesla shares managed to eke out a 12 cent gain on the day, which meant that they were essentially unchanged at $261.06.

Tesla’s 1.25% convertible notes due 2021 were seen trading with a 96 handle, which was also about unchanged around midsession. They closed at 95.6, according to Trace data.

Mentioned in this article:

Ares Capital Corp. Nasdaq: ARCC

Illumina Inc. Nasdaq: ILMN

LAM Research Corp. Nasdaq: LRCX

SunEdison Inc. Nasdaq; SUNE

Tesla Motors Inc. Nasdaq: TSLA

Weatherford International plc NYSE: WFT

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