Morning Commentary: Liquidity wanes ahead of holiday; Finisar stays active; Jakks’ equity drops

By Stephanie N. Rotondo

Seattle, Dec. 19 – There was limited liquidity in the convertible bond market early Monday, and a trader speculated that the trend would continue.

The market is expected to quiet down ahead of Christmas. Friday will be an early close.

At mid-morning, total trading volume was about $33 million, the trader said. Of that, about $8 million was Finisar Corp.’s $500 million of 0.5% convertible notes due 2036, a deal priced Friday.

The remaining volume was “spread out over 30 names,” the trader added.

As for Finisar, it was trading at 101.5 versus a share price of $31.46.

The deal was upsized from $450 million, with an initial conversion premium of 30%. Pricing came at the cheap end of talk for a 0.25% to 0.5% coupon and 35% to 40% initial conversion premium.

Meanwhile, a trader was surprised that none of Jakks Pacific Inc.’s convertibles were moving much, as the underlying equity dropped about 30% in early dealings.

“The stock is way off,” the trader said, noting that “lower guidance” was the culprit.

Late Friday, the toy maker cut its 2016 profit and sales guidance. The company now expects sales of $700 million, down from previous estimates of $755 million. Earnings per share is forecast to be 1 cent to 5 cents, down from 56 cents.

The company said the lowered forecast was largely due to lower-than-expected sales from key product lines.

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