Novocure convertible adds outright; U.S. equities rally; Arch Resources stock drops

By Rebecca Melvin

New York, Nov. 3 – Convertibles players watched trading of Novocure Ltd.’s newly priced 0% five-year convertibles on Tuesday, while a rally for U.S. equities marked the session as Americans cast their ballots on Election Day in the United States.

The equity rally notwithstanding, market attention turned to watching poll results, and further new issuance in the convertibles space was not expected to be launched or priced during the session.

“I would be shocked if any deals were announced tonight, but never say never,” a New York-based convertibles trader said.

Stocks rose, leaving the Nasdaq Composite index up 1.85% to 11,160.57, the S&P 500 index up 1.78% and the Dow Jones industrial average higher by 2.06% to 27,480.03.

The new Novocure deal performed well, a trader said, as did other names in the secondary market. Alteryx Inc.’s convertibles did well, but Tesla Inc.’s convertibles were quiet despite a gain for the underlying shares, which outperformed the broader market.

Arch Resources Inc., which priced $135 million of 5.25% five-year convertibles last week, saw its stock take another hit. Shares of the St. Louis-based mining company dropped $1.82, or 5.6%, to $30.54. Last week the shares plunged 17% amid pricing of the new bond. They added back only 2% after that. The new convertible was not heard in trade on Tuesday.

The Tesla 2% convertibles due 2024 were not heard in trade either and appeared to remain unchanged at 644.96, after a 20-point surge on Monday.

Novocure adds on debut

The newly priced Novocure bond, which priced with a 0% coupon and 50% initial conversion premium, traded up on an outright basis by 2 to 3 points on Tuesday after the health care oncology company priced $500 million of the five-year notes at terms that were rich to talk late Monday.

The new paper was “doing fine,” a convertibles trading market source said. It was seen at 102 to 103 with shares up about 1% at $113.32.

The stock had opened the session down about 0.5% after losing 8% on Monday. But the shares quickly bounced higher. On Monday, the stock closed down at $112.16 from the previous close of $122.10.

Pricing of the Novocure paper tightened to a fixed coupon of 0% and an initial conversion premium of 50% to 52.5% from initial price talk for a coupon of 0% to 0.5% and an initial conversion premium of 42.5% to 47.5%.

Novocure’s shares closed up $1.67, or 1.5%, at $113.83.

Alteryx recoups

Alteryx’s 1% convertible notes due 2026 recouped several points outright on Tuesday after a slide of about 5 points on Tuesday.

The convertibles changed hands at 105.2 early Tuesday and later at 106.5. The underlying shares were up $4.37, or 3.6%, at $126.50 in the early going and closed higher at $128.20, which was up by $6.07, or 5% on the day.

The bonds traded down to 104 on Monday from 109.

The Irvine, Calif.-based software company is expected to post its third-quarter results on Thursday.

The company is expected to report revenue of between $126 million and $128 million with non-GAAP earnings of between 9 cents and 14 cents per share. The results are expected to reflect better sales as its brands and solutions become better recognized.

Equity rally marks session

In the broader markets, equities rose as U.S. Election Day culminated months of contentious campaigning. Indeed, convertibles sources were surprised on Monday to see a deal on the eve of the election.

In addition to the presidential election, there are ballot choices that will determine control of Congress and 11 gubernatorial races. About 100 million people voted prior to Election Day in what was a record for early polls and a sign of a galvanized electorate.

While no additional new deals were expected on Tuesday, November was projected to be a busy one for the primary market with an active pipeline of new deals. So far, an eye-popping $95.5 billion in convertibles has been issued in 2020, compared to $51.45 billion for the same period of 2019. In all last year there was $58.38 billion, which this year has topped by a large margin.

Issuance this high in the convertibles space has not been seen since before the 2007-2008 financial crisis. The strength has not been just in terms of volume but also in terms of absolute and relative performance, according to Stuart Novick, a senior analyst with Invesco US.

In an article posted to the company’s blog, Novick wrote that convertibles issuance should remain healthy going into year-end, especially if equities continue to climb.

Novick said that part of what spurred the wave of convertibles issuance was the Covid-19 pandemic, which hit businesses and caused some companies to turn to convertibles issuance to shore themselves up during the ensuing market downturn and instability.

Meanwhile, the low interest rate environment combined with higher equities “still make converts more compelling than other types of debt or equity issuance in terms of cost of capital, in our view,” Novick wrote in the Sept. 24 blog.

Convertibles have also outperformed in secondary action. Their characteristics of both equities and fixed income has helped the asset class weather the downturn and take part in the subsequent rally, Novick wrote.

Mentioned in this article

Alteryx Inc. NYSE: AYX

Arch Resources Inc. Nasdaq: ARCH

Novocure Ltd. Nasdaq: NVCR

Tesla Inc. Nasdaq: TSLA

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.