Convertibles secondary active as equities sell off; Illumina down outright, up on swap

By Abigail W. Adams

Portland, Me., Sept. 21 – The convertibles primary market was silent on Monday as the sell-off in equities intensified.

Market sources were expecting a relatively active week with the end of the quarter approaching.

However, potential issuers may hold out for a better day for equities, a source said.

Meanwhile, the secondary space was “sloppy” amid the sell-off in equities.

However, the selling activity was orderly with panic not yet setting in, a source said.

While equities rallied into the close, paring losses from a brutal session, equity benchmarks still closed the day in the red.

The Dow Jones industrial average closed the day down 509 points, or 1.84%, the S&P 500 index down 1.16% and the Nasdaq composite down 0.13%.

There was $84 million on the tape about one hour into Monday’s session and $583 million in reported volume by the market close.

Illumina Inc.’s convertible notes remained active with the notes again down outright but improving dollar-neutral as stock continued to sell off.

Fortive Corp.’s 0.875% convertible notes due 2022 also saw high-volume activity although the notes were little changed.

Shopify Inc.’s newly priced 0.125% convertible notes due 2025 continued to gain in active trading with the e-commerce company’s stock one of the few gainers of Monday’s session.

Illumina in focus

Illumina’s convertible notes continued to top the volume charts as losses for the company’s stock mounted.

Illumina’s 0% convertible notes due 2023 were down outright but continued to improve dollar-neutral in the high-volume activity.

The notes were down about 3 points outright as stock dropped another 10%.

They were changing hands at 103.5 in the late afternoon.

The notes expanded another 0.5 to 1 point dollar-neutral, a source said.

The notes saw about $12.5 million in reported volume.

Illumina’s 0.5% convertible notes due 2021 traded down about 8 points outright.

The notes were changing hands at 119.5 in the late afternoon.

They expanded 1 point dollar-neutral.

There was about $18 million on the tape by the market close.

While the convertible notes still appeared overvalued, they are rated investment grade, which makes them attractive to certain accounts, a source said.

Illumina stock traded to a high of $283.24 and a low of $260.42 before closing the day at $270.13, a decrease of 8.59%.

Stock has been on a downward spiral since news broke about the company’s intention to acquire Grail Inc.

The acquisition had investors “scratching their heads,” a source said.

Grail is a spinoff of Illumina, and investors were having a hard time understanding why the company is buying back a company that it previously spun off.

Many also felt the deal is overvalued.

The company announced on Monday that it will acquire Grail in a cash and stock transaction valued at $7.1 billion.

Fortive eyed

Fortive’s 0.875% convertible notes due 2022 also saw high-volume activity on Monday.

The investment-grade rated notes were marked at 100.625 bid, 101.125 offered versus a stock price of $73.53, a source said.

The bonds saw more than $14 million in reported volume during Monday’s session.

Fortive stock traded to a high of $74.92 and a low of $71.22 before closing the day at $72.37, a decrease of 4.51%.

The notes looked optically unattractive with a negligible yield to maturity and a high premium.

However, the fair value of the notes modeled out to around 102, a source said.

With the investment-grade rating, Fortive’s notes are popular with European accounts, which tend to hold issues until their maturity, the source said.

Shopify gains

Shopify’s recently priced 0.125% convertible notes due 2025 continued to gain on an outright basis in active trading with the company’s stock one of the few to rise during Monday’s session.

The 0.125% notes were up 1 point outright with stock up a little over 1% in intraday activity.

The notes were changing hands at 107.5 in the late afternoon.

The notes remained active with $10.5 million on the tape during Monday’s session.

Shopify stock traded to a low of $881 and a high of $929.11 before closing the day at $927.89, an increase of 2.95%.

Stock was given a boost on Monday after a Goldman Sachs analyst reiterated a buy rating and raised their price target on the stock to $1,318 from $1,286.

Mentioned in this article:

Illumina Inc. Nasdaq: ILMN

Fortive Corp. NYSE: FTV

Shopify Inc. NYSE: SHOP

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