Finisar pressured by module troubles; OSI deal steady but subdued; Hornbeck remains weak

By Stephanie N. Rotondo

Seattle, Feb. 17 – There continued to be weakness in the convertible bond market in Friday trading.

Finisar Corp., for instance, was off 3.5 to 4 points outright as the stock dropped nearly 3% on the day. The declines came as an analyst with Craig-Hallum commented that one of the company’s fiber optic products was having trouble.

Meanwhile, it seemed investors were taking a bit of a breather on Friday, as there was little follow-through in recently topical names.

OSI Systems Inc.’s $250 million of 1.25% convertible senior notes due 2022 – a deal priced late Wednesday – was barely moving at all, according to a trader, who had seen just one round-lot trade in the issue as of mid-morning.

He said the convertibles were steady at par.

Later in the day, a market source placed the issue just south of par, which was deemed about unchanged on the day.

The company’s stock meantime ended down 94 cents, or 1.2%, at $77.36.

Hornbeck Offshore Services Inc.’s 1.5% convertible notes due 2019 were also seeing little movement, after being traded actively Thursday in the wake of a liquidity warning.

That warning sent the convertibles down about 4 points outright, while the company’s equity declined 22% in early trading.

Come Friday, the convertibles were still lower, losing about half a point to trade at 71, but liquidity was much more subdued.

The stock also remained weak, falling 9 cents, or 1.89%, to $4.66. The shares continued to be active.

In its quarterly results announced on Thursday, Hornbeck warned that it did not have enough liquidity to repay three issues of debt maturing in 2019, 2020 and 2021. As such, it was looking into refinancing or restructuring options but conceded that “in the current climate [it] is not likely to be achievable on terms that are in-line with the company’s historic cost of debt capital.”

Finisar falls

Finisar’s 0.5% convertible notes due 2036 were under pressure on Friday, along with its stock, as Craig-Hallum analyst Richard Shannon noted that one of the company’s products was in for trouble.

A trader said Finisar’s 0.5% convertible notes due 2036 were off 3.5 points outright, pegging the paper in a 103.5 to 104 area.

Another source saw the issue with a 104 handle, though there were trades as high as 107.75 during the session. Still, the closing level was called a loss of about 4 points outright.

The underlying equity waned $1.03, or 2.96%, to $33.75 on well above-average trading volume.

Shannon said in a research note that Finisar’s LR4 modules had recently been disqualified by several original equipment manufacturers and cloud customers due to failed interoperability.

Shannon said it could take one to two quarters before the module is re-qualified, meaning the bottom line was likely to be less than stellar in the coming earnings announcements.

Finisar is a Sunnyvale, Calif.-based manufacturer of optical communication components and subsystems.

Mentioned in this article:

Finisar Corp. Nasdaq: FNSR

Hornbeck Offshore Services Inc. NYSE: HOS

OSI Systems Inc. Nasdaq: OSIS

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