Ascent Capital launches tender; Integrated Device, Ciena expand; MercadoLibre contracts

By Abigail W. Adams

Portland, Me., Aug. 31 – Trading volume in the convertibles secondary space was higher than anticipated on Friday. However, most of the activity was end of month shuffling of accounts, a market source said.

Integrated Device Technology Inc.’s 0.875% convertible notes due 2022 were in focus and making large gains on an outright and dollar-neutral basis as stock shot up on news of a potential buyout of the company.

Ciena Corp.’s 4% convertible notes due 2020 were also making gains on an outright and dollar-neutral basis after the company’s stock again set a new 52-week high after an earnings beat.

MercadoLibre Inc.’s 2% convertible notes due 2028 dropped below par and contracted dollar-neutral as Argentina faces a credit downgrade after a sell-off in the currency.

Ascent Capital Group, Inc. has launched a tender offer for $63 million of the outstanding $96.78 million of its 4% convertible notes due 2022, which gives “a little kiss” for holders, a market source said.

The buyout

Integrated Device Technology’s 0.875% convertible notes due 2022 were the major movers in the secondary space on Friday.

The notes were making large gains on an outright and dollar-neutral basis as stock shot up on news about a potential buyout.

The notes were trading around 137.375 with about $9 million on the tape early in the session, a market source said.

They traded up to 140 with about $15 million on the tape later in the afternoon. The notes were expanded about 2.5 points dollar-neutral, a market source said.

Integrated Device stock broke out to a new 52-week high, closing Friday at $42.50, an increase of 12.32%.

The convertible notes and stock were moving on news Renesas is in talks to acquire the semiconductor company.

The two companies are rumored to be meeting over the weekend to further discuss the deal.

The takeout grid is favorable and the notes stand to gain about 3 points dollar-neutral on the change of control, a market source said.

Ciena expands

While slow to trade on Thursday, Ciena’s 4% convertible notes due 2020 were active on Friday and making gains on an outright and dollar-neutral basis.

The notes climbed about 6.25 points outright and were quoted at 162.83 at the market close. The notes expanded another 0.5 point on Friday after a 3-point dollar-neutral expansion on Thursday, a market source said.

While a major volume mover on Thursday, Ciena’s 3.75% convertible notes due Oct. 15, 2018 were not seen trading on Friday.

Ciena stock again set a new 52-week high in intraday trading on Friday. The stock closed the day at $31.58, an increase of 2.83%.

Ciena’s stock and convertible notes have been on the rise since Thursday after the company reported a third-quarter earnings beat.

MercadoLibre contracts

MercadoLibre’s 2% convertible notes due 2028 were down on an outright and dollar-neutral basis on Friday. The notes dropped below par, giving up their gains from earlier in the week.

They were seen trading at 99.375 versus a stock price of $340.77. The notes were contracted about 0.5 point dollar-neutral, a market source said.

MercadoLibre stock was volatile on Friday wavering between a high of $343.37 and a low of $336.55 before closing the day at $342.37, an increase of 0.65%.

The 2% notes were on the rise after a sloppy secondary market debut where the notes contracted 1 to 2 points dollar-neutral and traded as low as 98.5 outright.

The notes traded on a 106 handle for much of the past week and recouped their dollar-neutral losses.

However, the notes from the Buenos Aires-based e-commerce company dropped on an outright basis Thursday after a sell-off in Argentina’s currency.

While the sell-off slowed on Friday and the International Monetary Fund has vowed its support, the S&P placed the country’s credit ratings on CreditWatch with negative implications.

Some sources questioned whether the pricing of the bonds fully compensated for the emerging market risks associated with them.

However, Argentina’s economy was considered one of the more stable in South America when the bonds priced on Aug. 22.

Despite the movement in the notes, the $120 million greenshoe was partially exercised lifting the total size of the issuance to $880 million. (See related story elsewhere in this issue).

Ascent tenders

Ascent Capital has launched a tender offer for $63 million of the outstanding $96.78 million of its 4% convertible notes due 2022.

The early tender offer of $645 per $1,000 principle is “a little kiss” for holders, a market source said.

The 4% notes last traded on Aug. 22 between 63.875 and 64.125. The top three holders of the notes own about 60% of the outstanding bonds and the tender offer may have been negotiated with them prior to the announcement, the source said.

Since Ascent priced the 4% convertible notes in 2013, the company’s stock has tanked. The premium on the notes is over 2,000% and parity is about 23.

Given the deep discount of the notes, there may have been some concern over the company’s ability to pay them back.

However, the tender offer will help to alleviate some of those concerns, the source said.

Mentioned in this article:

Ascent Capital Group, Inc. Nasdaq: ASCMA

Ciena Corp. NYSE: CIEN

Integrated Device Technology Inc. Nasdaq: IDTI

MercadoLibre Inc. Nasdaq: MELI

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