Everbridge, Western Asset on tap; market eyes Lumentum offering; existing notes contract

By Abigail W. Adams

Portland, Me., Dec. 9 – The convertibles primary market launched into action on Monday with the Dec. 9 week one of the final weeks of the year for new deal activity.

Everbridge Inc. plans to price $375 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0% to 0.25% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

J.P. Morgan Securities LLC, Goldman Sachs & Co. LLC and Nomura are the bookrunners for the Rule 144A offering, which carries a greenshoe of $75 million.

Western Asset Mortgage Capital Corp. plans to price a tap of its 6.75% convertible notes due 2022 prior to the market open on Tuesday with price talk for a reoffer price of 101 to 101.5, according to a market source.

JMP Securities is bookrunner for the registered offering.

Lumentum Holdings Inc. plans to price $850 million convertible notes due 2026 after the market close on Monday.

The deal looked slightly cheap to fair value at the midpoint of talk. However, investors were pushing for the deal to price at the cheap end, a market source said.

Lumentum’s new offering sparked activity in the designer and manufacturer of optical and photonic products’ outstanding 0.25% convertible notes due 2024.

The 0.25% notes were contracting on the news.

Outside of Lumentum, activity in the secondary space was slow with few names seeing concentrated trading activity.

Prospect Capital Corp.’s 6 3/8% senior notes due 2025 were among the most actively traded issues in the secondary space although with little change to price.

Lumentum’s new offering

Lumentum plans to price $850 million seven-year convertible notes after the market close on Monday with price talk for a coupon of 0.25% to 0.75% and an initial conversion premium of 40% to 45%, according to a market source.

The deal was heard to be in the market with assumptions of 275 basis points over Libor and a 42% vol., according to a market source.

Using those assumptions, the deal modeled about 0.5 point cheap at the midpoint of talk, the source said.

However, investors like the deal at the cheap end of talk, another source said.

Lumentum is a repeat issuer of convertible notes. However, proceeds will not be used to refinance the 0.25% convertible notes due 2024.

Approximately $200 million of the proceeds will be used for a stock buyback, $196 million will be used to repay a term loan, with the remaining amount to be used for general corporate purposes.

People were “scratching their heads,” over what the company plans to do with the remaining amount of proceeds from the large offering.

“There’s a large chunk of change left” after the stock buyback and repayment of debt, a source said.

There is speculation the company may use the remaining proceeds to fund acquisitions, the source said.

Potential acquisitions were one of the uses the company listed under the general corporate purposes.

Lumentum contracts

With market players eyeing Lumentum’s new offering, the company’s outstanding 0.25% convertible notes due 2024 were contracting in active trading during Monday’s session.

The 0.25% notes were changing hands around 134.25 Monday afternoon.

They were contracted about 0.75 point dollar-neutral, a market source said.

Lumentum stock closed Monday at $69.68, a decrease of 3.33%.

The notes saw some selling pressure with holders making room for the new notes, a source said.

Prospect Capital active

The secondary space was slow as market players eyed Lumentum’s new offering.

Prospect Capital’s 6.375% convertible notes due 2025 were among the most actively traded issues in the secondary space.

There was about $8 million of reported volume in the late afternoon, placing it on the top of the volume charts, a market source said.

However, the 6.375% notes were moving largely sideways in the high-volume activity.

The notes were changing hands at 106.5 in the mid-afternoon.

Prospect Capital’s stock closed Monday at $6.53, an increase of 0.15%.

Prospect Capital’s tender offer for its 4.75% convertible notes due 2020 and 4.95% convertible notes due 2022 closed last Friday.

The company tendered for up to $10 million of the outstanding 4.75% notes and up to $50 million of the outstanding 4.95% notes.

However, only $392,000 of the 2020 notes and $13.43 million of the 2022 notes were tendered, according to a Securities and Exchange Commission filing.

Mentioned in this article:

Lumentum Holdings Inc. Nasdaq: LITE

Prospect Capital Corp. Nasdaq: PSEC

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