Microchip convertibles pop post-earnings, plans to tap market; Zillow notes decline

By Stephanie N. Rotondo

Seattle, Feb. 8 – Earnings news remained a key driver of convertible debt in midweek trading.

Microchip Technology Inc.’s 1.625% convertible notes due 2025 were quite busy in midweek trading, as the company came out with quarterly results late Tuesday that topped expectations.

In fact, the results were so much better than expected that trading in the company’s stock had to be halted after-hours.

In early dealings on Wednesday, the convertibles were up 10 points or more, according to market sources. However, the paper gave up some of the gains to close up only 6 or so points.

After the market closed, the company announced a $2 billion two-tranche offering of convertible debt, the proceeds of which would be used to reduce debt.

Zillow Group Inc.’s 2% convertible notes due 2021 were meantime off 3 to 4 points outright in the wake of its own earnings release.

The results did beat expectations, though the online real estate company also posted a wider loss.

Away from earnings-driven names, Nabors Industries Ltd.’s 0.75% convertible notes due 2024 were unchanged but active, a trader said.

The trader pointed out that at levels between 99.5 and 99.75, the paper “amazingly” was trading with a 61% premium.

Another market source said most of the trades occurred just south of par.

The stock was up 5 cents to $15.50.

Microchip strengthens

Microchip Technology’s convertibles saw sizable gains on Wednesday in the wake of the company’s late-Tuesday earnings release.

The 1.625% convertible notes finished up over 6.5 points at 146.5, according to one market source. The 2.125% convertible notes due 2037 were meantime up more than 18 points, trading with a 310 handle.

The source noted that the 1.625% paper was much more active than the 2.125% convertibles.

Earlier in the session, a trader noted that at 148 – where the bonds were at mid-morning – the convertibles were trading with a 30-point premium.

The equity was up $4.18, or 6%, at $73.80.

The Chandler, Ariz.-based manufacturer of microcontroller, memory and analog semiconductors posted adjusted third-quarter earnings per share of $1.05 on revenue of $881.2 million.

Analysts polled by FactSet had forecast EPS of 90 cents on revenue of $849 million.

The company also provided fourth-quarter guidance of $1.01 to $1.11 per share on revenue of $872 million to $908 million.

Analysts are predicting EPS of 93 cents on revenue of $863.4 million.

Late Wednesday, Microchip upped the ante, announcing that it planned to sell $2 billion of convertible notes via a Rule 144A offering of 10-year and 20-year paper.

Pricing was expected after Thursday’s close.

The company is selling $1.5 billion of convertible senior subordinated notes due 2027, which are talked at a 1.625% to 2.125% yield and an initial conversion premium of 37.5% to 42.5%. Additionally, another $500 million of convertible junior subordinated notes due 2037 will be sold, with yield talk between 2.2% and 2.75% and a conversion premium of 37.5% to 42.5%.

J.P. Morgan Securities LLC, Wells Fargo Securities LLC, BofA Merrill Lynch, BMO, HSBC Securities and U.S. Bank are running the books.

Approximately $1.5 billion of the proceeds will be used to reduce borrowings under an amended credit facility. The company also plans to use up to $450 million to redeem its 2.125% junior subordinated convertible debentures due 2037 through privately negotiated transactions.

Any remaining proceeds will be used for general corporate purposes.

Zillow sinks post-earnings

Zillow Group’s 2% convertible notes due 2021 waned 3 to 4 points on Wednesday as the market digested the company’s latest quarterly results.

The convertibles fell to a 100.625 to 101 context, down from 104 previously, according to a market source.

At mid-morning, the convertibles were pegged in a 100.75 to 101 range.

The underlying shares declined $2.35, or 6.37%, to $34.52.

For the fourth quarter, Zillow reported revenue of $227.6 million. That equated to a 34% gain year over year.

Analysts had predicted revenue of $222.3 million.

The company also posted a net loss of $220.4 million.

The Seattle-based company also said that it expects to see annual revenue of $1 billion in 2017.

Mentioned in this article:

Microchip Technology Inc. Nasdaq: MCHP

Nabors Industries Ltd. NYSE: NBR

Zillow Group Inc. Nasdaq: Z

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