Innoviva new issue prices, trades actively; Illumina paper firms; Tesla up as results eyed

By Stephanie N. Rotondo

Seattle, Aug. 2 – The convertible bond market was aflutter over Innoviva Inc.’s $175 million offering of 2.5% convertible senior notes due 2025 on Wednesday.

The deal priced ahead of the open, coming with an initial conversion premium of 30%.

Meanwhile, Illumina Inc.’s convertibles were faring well after the company reported better-than-expected earnings.

The bonds were up as much as 6 points on the day, while the underlying equity added almost 15%.

Tesla Inc.’s paper was meantime trading up ahead of the company’s second-quarter results, which were announced after the market closed.

The results beat expectations.

Another notable name was Walter Investment Management Corp. The Tampa-based mortgage banking company announced a deleveraging transaction agreement on Tuesday.

In response, the company’s debt – as well as its stock – took a downward turn.

Innoviva prices new deal

Innoviva sold $175 million of 2.5% eight-year convertible notes on Wednesday, coming with an initial conversion premium of 30%.

Price talk was for a 2.25% to 2.75% yield and a premium of 27.5% to 32.5%.

A market source said the paper was trading either side of par.

As for the company’s older issues, the 2.125% convertible notes due 2023 were trading in a 93 to 94 context, about unchanged from the previous session.

The company’s stock was sliding in the wake of the new deal, falling 40 cents, or 3.01%, to $12.88.

Morgan Stanley & Co. LLC and Deutsche Bank Securities Inc. ran the books.

The paper is convertible into 57.9240 common shares per each $1,000 of notes, equal to an initial conversion price of $17.26. Prior to Feb. 15, 2025, the notes are convertible only in certain circumstances. After that date, the debt can be converted at any time.

The convertibles are non-callable for life.

The transaction is being done as part of the company’s plan to refinance its 9% fixed rate term notes due 2029. Proceeds from the convertibles offering will be used to redeem a portion of the issue on Aug. 15.

The company will also use the funds to purchase $17.5 million of common stock via privately negotiated transactions.

Illumina beats estimates

Illumina’s convertibles got a nice pop on Wednesday, as the market reacted well to better-than-expected earnings.

A market source said the 0% convertible notes due 2019 hit levels around 104, which was up 2 to 3 points. The 0.5% convertible notes due 2021 were seen around 113.5, a gain of 5 to 6 points.

Another source also placed the 0.5% convertibles around the 113.5 mark, deeming that up about 6.25 points.

Earlier in the session, one source placed the 0% notes in a 103 to 104 context, which was up from 101.5 previously.

As for the underlying equity, it was up $25.55, or 14.83%, at $197.85.

For the quarter, the San Diego-based DNA sequencing company posted net income of $128 million, or 87 cents per share. That compared to income of $120 million, or 82 cents per share, the year before.

On an adjusted basis, earnings per share came to 82 cents.

Revenue improved to $662 million from $600 million.

Analysts polled by FactSet had expected adjusted EPS of 82 cents on revenue of $642.2 million.

For the year, Illumina is forecasting adjusted EPS of $3.60 to $3.70 a share. Analysts are projecting $3.63 a share.

Tesla firm pre-earnings

Ahead of its own earnings release after the market closed, Tesla’s convertibles were edging upward.

At one desk, the 2.375% convertible notes due 2022 were seen straddling 119, a gain of 1 to 2 points. The 1.25% convertible notes due 2021 were up a similar amount, trading up to a 110 handle, according to a market source.

The company’s stock was also doing well prior to the release of the results, rising $6.32, or 1.98%, to $325.89.

The Palo Alto, Calif.-based automaker posted a narrower-than-expected loss for the quarter. Net loss was $336 million, or $2.04 per share. That compared to a loss of $293 million, or $2.09 a share, the year before.

On an adjusted basis, earnings per share came to $1.33.

Revenue was $2.79 billion.

Analysts polled by Thomson Reuters had forecast adjusted EPS of $1.82 on revenue of $2.51 billion.

The company also said it had more than $3 billion in cash at the end of the quarter.

Additionally, Model 3 production is expected to hit previously announced targets.

Walter gets whacked

It was not a good day for Walter Investment Management’s bonds, as the market did not react well to news of a restructuring agreement.

One source called the 4.5% convertible notes due 2019 down about 13 points, trading just south of 21.

But another source said the convertibles were off even more, closing at 16.5.

Walter’s equity meantime dropped 32.1 cents, or 38.862%, to 50.5 cents.

On Tuesday, Walter said it had inked a restructuring support agreement with certain lenders. Additionally, it had secured waivers from certain lenders and noteholders.

Part of the proposal will include extending a credit agreement’s maturity to June 2022.

The company said it plans to take the next 30 days to secure a restructuring agreement with holders of its senior notes.

Mentioned in this article:

Illumina Inc. Nasdaq: ILMN

Innoviva Inc. Nasdaq: INVA

Tesla Inc. Nasdaq: TSLA

Walter Investment Management Corp. NYSE: WAC

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