Dycom convertibles drop outright, expand on hedge; Viavi Solutions actively traded

By Abigail W. Adams

Portland, Me., Aug. 13 – The convertibles secondary market started the week off slowly with few names seeing concentrated trading activity. Dycom Industries Inc.’s 0.75% convertible notes due 2021 were the exception.

The notes dominated trading activity in the secondary space and were dropping outright but expanding on a dollar-neutral basis as the company’s stock plummeted after lowering its guidance.

With $37 million of the bonds on the tape by late afternoon on Monday, the 0.75% notes were the only issue to see more than $10 million trade, sources said.

Not a single convertible from the health care sector was on the tape mid-afternoon Monday, a market source said.

Viavi Solutions Inc.’s 1% convertible bonds due 2024 were active in the secondary space with the notes gaining on an outright basis.

The network assurance technology company’s 0.625% convertible notes due 2033 are putable this week, a market source said.

While the bonds did not trade during Monday’s session, First Majestic Silver Corp.’s 1.875% convertible notes due 2023 were quoted down almost 7 points outright as stock dropped after a second-quarter earnings miss.

The notes, which were quoted at 96.5, closed Monday quoted at 89.8, according to a market source. First Majestic stock closed Monday at $5.49, a decrease of 15.28%.

Dycom in focus

Dycom’s 0.75% convertible notes were expanding on a dollar-neutral basis as the notes dropped alongside stock after the specialty contractor for telecommunications providers lowered its guidance.

The 0.75% convertible notes dropped about 10 points outright to trade between par and 101 during Monday’s session with stock down more than 20%.

Dycom stock closed Monday at $67.85, a decrease of 24.37%.

The notes were seen expanded about 2.5 points dollar-neutral early in the session. They were seen expanded about 3.5 points in the late afternoon, a market source said.

The notes were moving on a 60% to 65% delta.

However, holders of the notes were primarily outright accounts, a market source said. With the notes dropping back to par, they may appeal to more outright buyers.

However, their small coupon and short duration make them not very exciting, the source said.

Dycom lowered its second-quarter and full-year guidance ahead of its second-quarter earnings announcement.

Non-GAAP earnings per share are now expected to be 94 cents to 97 cents versus previous guidance for $1.02 to $1.17, according to a company news release.

Non-GAAP earnings per share for 2019 are now expected to be $2.17 to $2.62 versus previous guidance of earnings per share of $3.81 to $4.70.

Prior to the Monday announcement, the 0.75% convertible notes were trading in the 110 to 113 range for much of August, according to Trace data.

The convertible notes also dropped after Dycom’s first-quarter earnings miss in May when the company also lowered its guidance.

The convertible notes were trading around 130 in the run up to the company’s first-quarter earnings report on May 22.

Viavi active

Viavi’s 1% convertible bonds due 2024 were active on an otherwise quiet day in the secondary space.

The notes were up more than 2 points outright as stock made gains during Monday’s session. The notes were seen at 104¾ bid, 105¼ offered, a market source said.

About $7 million of the bonds were on the tape by late Thursday. Viavi stock closed Monday at $10.97, an increase of 3.39%. The closing price is a new 52-week high for the company.

Viavi stock was boosted by an analyst upgrade to buy from hold on Monday.

The upgrade from Needham was due to an expected increase in 3D sales volume, which the market might not have priced in yet, MarketWatch reported.

The activity comes in the run up to the company’s quarterly earnings announcement, which will be released after the market close on Aug. 14.

As Viavi’s 1% convertible notes saw trading action, the company’s 0.625% convertible notes due 2033 are putable on Aug. 15.

The 0.625% convertible notes saw a single trade at 100.5 on Monday, according to Trace data. There are about $277 million of the 0.625% convertible notes outstanding.

In a part exchange, part private placement, Viavi exchanged $151.5 million of the 0.625% convertible notes for $155.5 million of 1.5% convertible notes due 2023 in late May.

In addition to the exchange, Viavi priced $69.5 million of the 1.75% convertible notes in a private placement.

The 1.75% convertible notes were not seen trading on Monday. They were last seen changing hands at 104.28 on Friday, according to Trace data.

Mentioned in this article:

Dycom Industries Inc. NYSE: DY

First Majestic Silver Corp. NYSE: AG

Viavi Solutions Inc. Nasdaq: VIAV

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