MercadoLibre, China-based companies’ convertibles drop; Ciena active; K2M Group quiet

By Abigail W. Adams

Portland, Me., Aug. 30 – The convertibles secondary market was again quiet on Thursday with the focus on the steady pipeline of deals expected in September.

There was about $33 million of bonds on the tape early in the session and about $260 million in the late afternoon, sources said.

Ciena Corp.’s soon-to-mature 3.75% convertible notes due Oct. 15, 2018 were in focus as the company’s stock broke out to a new 52-week high after an earnings beat.

Illumina Inc.’s 0% convertible notes due 2023 continued to make gains on an outright basis as stock again broke out to a new 52-week high. However, the notes were trading in line dollar-neutral.

MercadoLibre Inc.’s 2% convertible notes due 2028 were also down outright but unchanged dollar-neutral as the Buenos Aires-based e-commerce company’s stock fell amid a deepening financial crisis in Argentina.

The convertible bonds of several China-based companies were active and dropping on an outright basis as their American Depositary Receipts took a hit in the latest U.S.-China trade war developments.

While down outright, Weibo Corp.’s 1.25% convertible notes due 2022 and Momo Inc.’s 1.25% convertible notes due 2025 were holding firm dollar-neutral.

K2M Group Holdings, Inc.’s 3% convertible notes due 2025 were not active in the secondary space as stock jumped more than 25% after the company announced it would be bought out by Stryker Corp.

Ciena active

Ciena’s 3.75% convertible notes due Oct. 15, 2018 were volume leaders in the secondary space as the company’s stock broke out to a new 52-week high.

The notes, which trade at parity, were moving in line with stock, a market source said.

The 3.75% notes traded up about 20 points to 156.5 on Thursday.

Ciena stock was up more than 15% in intraday trading. The stock closed Thursday at $30.71, an increase of 12.45%.

While Ciena’s 3.75% convertible notes were active, the company’s 4% convertible notes due 2020 were not seen trading, sources said.

The move in the telecommunications networking equipment, software and services provider’s stock and convertible notes came after an earnings beat.

Ciena reported non-GAAP earnings per share of 48 cents for the third quarter, which beat analyst expectations of 36 cents per share.

The company announced on its earnings conference call it will settle in cash $112 million of the market value of the notes in excess of the face value upon maturity.

Illumina’s new heights

Illumina’s 0% convertible notes due 2023 continued their upward momentum on Thursday as stock again broke out to a new 52-week high after a record setting week.

The 0% notes traded up to 111 during Thursday’s session. They were expanded about 0.5 point dollar-neutral, a market source said.

Illumina stock has seen several new 52-week highs over the past two weeks and again set a new one on Thursday.

The stock closed the day at $353.01, an increase of 0.68%.

Illumina announced on Aug. 27 it had received approval from the China National Drug Administration to market and sell its in-vitro diagnostic testing system in China.

MercadoLibre falls

MercadoLibre’s 2% convertible notes due 2028 were active and trading down on an outright basis on Thursday as the company’s stock dropped amid increasing economic woes in Argentina.

The 2% convertible notes changed hands between 101.5 and 102 on Thursday after trading on a 106 handle on Wednesday.

However, the move down was in line with stock and the convertible notes were unchanged on a dollar-neutral basis, a market source said.

MercadoLibre stock closed Thursday at $340.15, a decrease of 9.88%.

The move downwards “creates a little opportunity,” a market source said.

While the 2% notes traded “sloppy” on their market debut on Aug. 22, the notes improved, trading up to the 106 range over the past week, sources said.

The drop in MercadoLibre’s stock comes as Argentina’s currency continued to plummet despite an emergency interest-rate increase.

Trade wars

The convertible bonds and ADRs of several China-based companies were trading down on Thursday as president Donald Trump vowed to impose a fresh round of tariffs on China.

Weibo’s 1.25% convertible notes due 2022 were seen at 97.5 bid, 98 offered on Thursday. Weibo’s equity closed Thursday at $76.44, a decrease of 4.28%.

Momo’s 1.25% convertible notes due 2025 dropped below par on Thursday after trading as high as 103 on Wednesday, a market source said. Momo’s equity closed Thursday at $44.83, a decrease of 5.74%.

While dropping outright, the notes remained firm dollar-neutral, a market source said.

The equity and convertible notes of several China-based companies were on the rise over the past two weeks with the belief the trade war was simmering.

However, Trump announced on Thursday he would impose tariffs on $200 billion in imports from China next week.

K2M’s buyout

K2M Group Holdings’ 3% convertible notes due 2025 and 4.125% convertible notes due 2036 were not active in the secondary space as stock jumped more than 25% after the company announced it would be bought out by Stryker.

While not seen trading, the 4.125% convertible notes were quoted up 17 points outright to 143 at the market close.

The 4.125% convertible notes have $50 million outstanding. K2M priced $75 million of the 3% convertible notes in mid-June. Both notes have takeover protection.

Stryker will acquire the medical device company in a $1.4 billion deal with an offer of $27.50 per share.

The deal is expected to close in the fourth quarter. K2M stock closed Thursday at $27.50, an increase of 26.03%.

Mentioned in this article:

Ciena Corp. NYSE: CIEN

Illumina Inc. Nasdaq: ILMN

K2M Group Holdings, Inc. Nasdaq: KTWO

MercadoLibre Inc. Nasdaq: MELI

Momo Inc. Nasdaq: MOMO

Weibo Corp. Nasdaq: WB

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