Convertibles market awaits Bristow notes; Trinity and Finisar rise; Oasis tumbles

By Abigail W. Adams

Portland, Me., Dec. 13 – The eyes of the financial world were on Federal Reserve chairman Janet Yellen as she announced an increase in the benchmark lending rate, maintained plans for three rate hikes in 2018 and raised the forecast for economic growth.

The new target range of 1.25% to 1.5% and planned rate increases in 2018 was both welcome and expected, a market source said. However, the impact it will have on the convertible space is still yet to be determined with interest rates still historically low.

“The reason issuances have dropped off is because we’re in such a low-rate environment,” a market source said. “It’s really depressed new issue activity.”

While primary market activity is nowhere near where it used to be, it has increased over the past year with new deals still flowing as 2017 draws to a close.

The market awaits new paper from Bristow Group Inc., which plans to price $125 million of convertible notes due 2023 after the market close. Price talk was for a coupon of 4.25% to 4.75% and an initial conversion premium of 22.5% to 27.5%, according to a market source.

Barclays and Credit Suisse Securities (USA) LLC are the joint bookrunners for the registered sale, according to a company news release. The deal carries an $18.75 million greenshoe.

Finisar Corp.’s 0.5% convertible notes due 2036, 0.5% notes due 2033 and underlying equity made large gains during Wednesday’s session. The 0.5% notes due 2036 reached their highest point since August after Apple Inc. announced it would give $390 million to the optical components maker.

Finisar’s 0.5% notes due 2033 also made large gains, climbing 5 points from previous levels.

Trinity Industries Inc.’s 3.875% convertible notes due 2036 continued to make gains during Wednesday’s session, rising another 4 points to 158.62. The notes also rose 4 points during heavy trading on Tuesday.

The company, which provides products and services to the industrial, energy, transportation and construction sectors, announced plans on Tuesday to spin off its infrastructure business and narrow its focus to the railways.

Oasis Petroleum Inc.’s 2.625% convertible notes due 2023 continued their downward spiral during Wednesday’s session, losing another 2 points after a 6-point drop on Tuesday. There was a large sell-off of stock on Tuesday as investors responded negatively to the petroleum company’s $946 million acquisition of acreage in Texas’ Delaware Basin.

Apple believes in Finisar

Finisar’s 0.5% convertible notes due 2036 soared to their highest heights since August during Wednesday’s session after Apple announced it was providing $390 million to the company to boost its chip-making production capabilities. Those heights, however, still fell short of par.

The 0.5% notes due 2036 gained about 6 points on Wednesday and were trading in a range of 96.556 to 97.45 before closing the day at 96.691, according to Trace data.

Finisar’s 0.5% convertible notes due 2033 also made large gains during Wednesday’s session climbing to 105.75 by market close, according to Trace data. The notes were hovering around par prior to Wednesday.

Finisar stock skyrocketed during Wednesday’s session, closing the day at $23.70, an increase of 22.8%.

The funds from Apple will be used to open a plant in Texas to ramp up production of laser chips to be used in the iPhone X and Apple’s wireless headphones. Products are expected to ship from the plant in 2018. Finisar purchased the factory last week.

Apple and Finisar have clarified that the funds from Apple were not an investment and Apple has assumed no debt or equity in the company. The funds were an award from Apple’s advanced manufacturing fund, according to a company release.

Trinity’s focus

Trinity’s 3.875% convertible notes continued to make gains during Wednesday’s session after the company announced Tuesday it would narrow its focus to rail car leasing, manufacturing, and servicing and spin off its infrastructure business.

The notes rose to 158.62 on Wednesday, after closing Tuesday at 154.32, according to Trace data. Trinity stock surpassed its 52-week high in early trading, gaining 1.71% to trade at $37.51.

Stock weakened slightly to end the day at $37.36, an increase of 1.3%, and just shy of the 52-week high of $37.45.

The spinoff is expected to be complete mid-2018. The new company will be growth orientated and consist of Trinity’s products and services in the energy, construction and marine markets, according to a company news release.

Trinity also announced on Tuesday it would increase its share buyback program to $500 million from $250 million and announced a quarterly dividend of 0.13 a share.

While Trinity stock and notes surged following the announcement, Moody’s has placed the company’s 3.875% convertible notes on review for downgrade as a result of the spinoff, although any downgrade would be limited to one notch.

No oasis

Oasis Petroleum’s 2.625% convertible notes due 2023 continued to lose ground on Wednesday after the company’s stock was pummeled on Tuesday. The notes sunk to 105.125 during Wednesday’s session, more than a 2-point drop from Tuesday’s closing trade of 107.884, according to Trace data.

The notes dropped about 6 points on Tuesday following the company’s announcement of its purchase of acreage in the oil and natural gas rich Delaware Basin. The $946 million deal consisted of $483 million cash and 46 million shares.

Concurrent to the acquisition announcement, Oasis priced 32 million shares of common stock for net proceeds of $305.6 million Monday night. Oasis stock sunk to $8.10 at Wednesday’s close, a decrease of 2.76%. Stock fell about 17% on Tuesday.

Despite investor reaction to the new acquisition, analysts remain bullish on Oasis with price targets for stock ranging from $11.00 to $14.00 after the acquisition announcement.

Mentioned in this article:

Bristow Group Inc. NYSE: BRS

Finisar Corp. Nasdaq: FNSR

Oasis Petroleum NYSE: OAS

Trinity Industries Inc. NYSE: TRN

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