Convertibles secondary market firms; new paper slow to trade; Transocean in focus

By Abigail W. Adams

Portland, Me., April 10 – The convertibles primary market was again quiet on Tuesday with no new deals launched. With companies in the black-out period prior to earnings announcements, new deal volume is expected to remain thin, sources said.

While still quiet, the secondary market in the convertibles space looked firmer on Tuesday with bids coming in higher with the upswing in equities, sources said.

Trading activity surrounding the new paper that entered the space last week continued to be subdued as focus shifted to existing issuances.

Transocean Inc.’s 0.5% convertible notes due 2023 were in focus on Tuesday with the notes climbing 9 points outright as the Switzerland-based offshore drilling contractor’s stock climbed.

While slow to trade since their market debut, BofA Finance LLC’s recently priced 0.25% cash-settled equity-linked notes due 2023 tied to Voya Financial Inc. stock saw an uptick in trading volume on Tuesday. However, the notes remained in the 98 to 99 range.

Pure Storage’s recently priced 0.125% convertible notes due 2023 were up about 0.25 point on swap on Tuesday as the Mountain View, Calif.-based data flash storage company’s stock recuperated from a 6% drop last week.

While trading was light, Gannett Co. Inc.’s recently priced 4.75% convertible notes due 2024 remained largely flat to up slightly on Tuesday after expanding 1 point dollar neutral on their market debut on April 4.

Ironwood Pharmaceuticals Inc.’s 2.25% convertible notes due 2022 expanded about 0.75 point dollar neutral on Tuesday as activist investor Alex Denner, of Sarissa Capital Management, makes a bid for the company’s board of directors.

Transocean rises

Transocean’s 0.5% convertible notes due 2023 were active and making large gains on Tuesday on an outright basis. The 0.5% notes were seen trading in a range of 119 to 121 on Tuesday as stock climbed 6% to 7%.

Transocean stock closed Tuesday at $10.51, an increase of 6.61%.

The notes have seen little trading activity in April and were trading in a range of 110 to 116 prior to Tuesday’s session.

Transocean issued the 0.5% convertible notes as part of the acquisition of Cyprus-based offshore drilling company Songa Offshore SE. Transocean issued $853.8 million in an exchange agreement for the common shares and debt of Songa.

The compulsory acquisition was completed on March 30 with all remaining shares of Songa transferred to Transocean and the consideration shares, convertible bonds and cash included in the acquisition delivered to Songa shareholders, according to a company news release.

Last week’s deals

Pure Storage’s 0.125% notes were again up on swap on Tuesday after trading largely in-line dollar neutral on Monday.

While continuing to trade below par, the notes were seen up a little more than 0.25 point on swap on Tuesday, a market source said.

The notes were hunched around 99.5 in scattered trades on Tuesday with stock up slightly. Pure Storage stock closed Tuesday at $18.45, an increase of 0.54%.

After trading as high as 102 on their market debut on April 5, Pure Storage notes traded down on an outright basis as the company stock dropped. The notes traded below par much of Monday but were seen moving in-line dollar neutral.

In limited activity on Tuesday, Gannett’s recently priced 4.75% convertible notes due 2024 remained largely flat dollar neutral after expanding on their market debut on April 4.

The 4.75% notes were seen trading around 102.5 on Tuesday. Gannett stock closed Tuesday at $9.36, an increase of 0.75%.

After seeing little trading action since debuting in the secondary space on April 6, BofA’s 0.25% cash-settled notes linked to Voya have seen an uptick of activity. However, the 0.25% notes continued to trade in the 98 to 99 range.

The notes have largely been wrapped around 99 since hitting the market, according to Trace data. While the threshold premium for the notes was set at 37.5%, the threshold reference price will not be determined until the end of a five-day averaging period which began on April 6.

Voya stock closed Tuesday at $50.81, an increase of 2.25%.

Ironwood expands

Ironwood Pharmaceuticals’ 2.25% convertible notes due 2022 were up 0.75 point dollar neutral on Tuesday, a market source said. News broke on Monday that activist investor Denner is taking aim at a seat on the board.

Denner’s Sarissa Capital Management acquired a 1.65 million share stake in Ironwood in the fourth quarter of 2017, CNBC reported. “There’s speculation there’ll be a take-out,” a market source said.

The 2.25% notes, which have seen little trading activity in April, were active on Tuesday and trading in the 121 to 122 range. The notes were trading in a 112 to 113 range last week, according to Trace data.

Ironwood stock closed Tuesday at $16.29, an increase of 2.65%, after jumping 10% on Monday.

Denner formerly ran biotech investments for Carl Icahn before founding Sarissa Capital and has orchestrated the sale of a number of those investments.

Mentioned in this article:

Gannett Co. Inc. NYSE: GCI

Ironwood Pharmaceuticals Inc. Nasdaq: IRWD

Pure Storage NYSE: PSTG

Transocean Inc. NYSE: RIG

Voya Financial Inc. NYSE: VOYA

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