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Morning Commentary: Convertible bond market buzzes as new Ensco, Teradyne, Zillow deals price
By Stephanie N. Rotondo
Seattle, Dec. 7 – The convertible bond market was experiencing higher-than-usual volume in early midweek trading, spurred by a flurry of new issuance.
A trader said that of the $273 million in total secondary-market volume, $200 million was made up of Ensco plc’s $750 million of 3% exchangeable senior notes due 2024 and Teradyne Inc.’s $400 million of 1.25% senior convertible notes due 2023.
Ensco – which was upsized from $650 million and priced with a 32.5% conversion premium – “has done very, very well considering” that the equity was trading off, the trader said.
He said the issue was trading between par and 102, “depending on the common stock, because there is a lot of leverage.”
Teradyne was meantime pegged in a 104 to 104.5 context, as the equity was pushing higher.
“If [Ensco’s stock] had behaved like that, they would be 106 by now,” the trader said.
Teradyne came with a 27.5% conversion premium.
Also priced Wednesday was a $400 million offering of 2% convertible senior notes due 2021 from Zillow Group Inc.
The convertibles were seen at 101.75 bid, 102.25 offered at mid-morning.
The underlying equity – the company’s class C common stock (Nasdaq: ZG) – however, was off as much as 90 cents, or 2.36%, at $37.17.
That deal came with a 37.5% conversion premium.
The activity in the new issues came amid “a lot of demand for new paper,” a trader remarked. “And we will continue to see that.”
The trader also pointed out that “these are real companies, the kind you want to see – not just these oil and gas guys.”
Issuance in the convertible bond market has been sparse for the last several years, the trader noted, so Wednesday’s hubbub was “certainly a nice start.”
Still, “it’s going to take quite a bit of issuance” for the past years of lost deals, he said.
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