Convertibles see pockets of improvement on swap; volumes light; recent issuance eyed

By Rebecca Melvin

New York, Aug. 19 – The convertibles market saw names improve on a swap basis on Monday, although the space overall was calm as stock markets continued to rebound from a swoon last week, according to market sources.

“I’d say things are definitely better to buy today, but volumes are light,” a New York-based trader said.

The trader noted that DexCom Inc.’s 0.75% convertible notes due 2023 expanded about 0.125 point to 0.1875 point on a dollar-neutral basis as DexCom shares ended the session just below the flatline, after being weighed down all day.

The close for shares of DexCom, a San Diego-based manufacturer of glucose monitoring systems, was down 9 cents at $163.59.

Also expanding in like amount on swap were the convertibles of TTM Technologies Inc., which saw its underlying shares continue to rebound for a second day, gaining 28 cents, or 2.7% on the day, to $10.54.

The TTM 1.75% convertibles due 2020 changed hands at 120 to 121.125 on Monday compared to the most recent trade of 116.25 on Thursday, according to Trace bond trade activity.

Also trading up 0.125 point or so on swap were ON Semiconductor Corp.’s 1% convertible due 2020, of which $690 million priced in 2015, and Splunk Inc.’s 1.125% 2025 notes. Shares of the San Francisco-based software company were up 0.6% on the day.

A second source said that mandatory names were firm and that there were pockets of activity in the overall space including end-of-life names such as NextEra Energy Inc.’s 6.123% convertibles and DTE Energy Co. as well as International Flavors & Fragrances Inc., Sempra Energy, Change Healthcare Inc. and Dominion Energy Inc.

Last week’s market volatility has touched off a good amount of activity in the convertibles secondary space, a New York-based trader said. And the first half of August in general was very strong for new issuance.

Convertibles deals that priced last week, including Wayfair Inc.’s $825 million issue of 1% convertible notes due 2026 and Workiva Inc.’s $300 million of 1.125% convertible seven-year notes, were in focus, the trader said.

Snap Inc., which priced $1.27 billion of 0.75% seven-year notes earlier in the month, as well as BlackLine Inc.’s $435 million 0.125% notes due 2024, which also priced at that time, were also seeing mild action. BlackLine shares were up nearly 2% on the day, while Snap shares were last up 0.5%.

Palo Alto Networks Inc.’s 0.75% convertible notes due 2023 were also active as stock gained on the heels of a completed merger. The Santa Clara, Calif.-based cyber security network and enterprise security company’s stock price was $208.90 when the $1.5 billion convertible was issued a year ago. Stock is lower than it was a year ago at $196.73.

Palo Alto has seen negative news headlines in recent days with near-term concerns cited including with uncertainty surrounding billings, cash flow and margins. In addition, the company announced that its head of sales worldwide, Dave Peranick, is leaving in September, which caused shares to drop 7.2% on Friday alone. The company reports earnings Sept. 4.

Pop in deals

The first half of August brought a windfall of new convertibles deals. Through Aug. 16, there was $5.99 billion of new issuance in 14 deals, which represented 18.2% of the year’s new paper tally to date, according to Prospect News’ data.

Issuance was nearly tie with June, which was the largest new issue month of the year, with $6.3 billion in 15 deals for 10.2%. So far this year, there have been $32.99 billion in 82 deals. That level is below the same period last year when $38.27 billion in 118 deals priced. But in August 2018 there was only $1.66 billion in seven deals for the whole month.

One trader suggested that the level of new issue activity should continue because technology and technology-related companies are likely to want to continue to raise capital in the current financial environment. Last week was “a week of total volatility and today volumes are below. It’s like the calm after the storm,” a trader said.

Mentioned in this article:

BlackLine Inc. Nasdaq: BL

Change Healthcare Inc. Nasdaq: CHNG

DexCom Inc. Nasdaq: DXCM

Dominion Energy NYSE: D

DTE Energy Inc. NYSE: DTE

International Flavors & Fragrances Inc. NYSE: IFF

NextEra Energy Inc. NYSE: NEE

ON Semiconductor Corp. Nasdaq: ONNN

Palo Alto Networks Inc. NYSE: PANW

Sempra Energy NYSE: SRE

Snap Inc. Nasdaq: SNAP

Splunk Inc. Nasdaq: SPLK

TTM Technologies Inc. Nasdaq: TTMI

Wayfair Inc. NYSE: W

Workiva Inc. NYSE: WK

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