Intel continues to dominate trading, Array BioPharma upsizes exchange agreement

By Abigail W. Adams

Portland, Me., Nov. 20 – Intel Corp.’s 2.95% convertible due 2035 continued to see heavy volume on the second full trading day since the company announced it would redeem the full $1.6 billion in outstanding notes on Dec. 18.

The market expects the company to call its 3.25% convertible notes due 2039 once it is able and investors are treating the notes as they would an equity, a market source said.

Array BioPharma Inc.’s privately negotiated exchange agreement has been upsized to $126.06 million from the initially announced $107 million. The unique structure of the agreement helped prevent the dilution of stock after a public offering of $24.06 million in September.

Spirit Realty Capital Inc. saw heavy volume trading during Monday’s session as the company announced it has confidentially submitted a registration statement on Form 10 to the SEC related to the spin-off of some of its assets to Spirit MTA REIT.

Intel stays busy

Intel’s 2.95% convertible due 2035 continued to see heavy trading volume on Monday, with the soon-to-be called note accounting for $22 million of the total $334 million of convertible notes traded by the late afternoon.

After dropping nearly 4 points on Friday to close at 166.471, the notes waivered during trading, dropping and gaining about a point before closing Monday’s session near unchanged at 166.316, according to Trace data. Intel stock closed the day Monday at $44.62, a decrease of 0.02%.

The call has wiped out the conversion premium for hedge players with the loss in value a total loss for convertible arbitragers.

“The fact that it is going to be called wipes out the premium that arbitragers are exposed to. It really isn’t a convertible anymore. The rationale for holders is gone,” a market source said.

The convertible notes are going to short-term arbitragers who are shorting the underlying stock “looking for pennies in guaranteed profits” or bullish portfolio managers looking for a fixed-income asset that acts like an equity, a market source said.

In an overall quiet session, Intel’s 3.25% convertible due 2039 also continued to trade actively. The note also waivered during the session, dropping and gaining before closing Monday’s session at 214.5, just under two-tenths of a point lower than Friday’s closing price of 214.68.

With sources pointing to the high coupon as motivation for calling the note, some say the 3.25% bond will be called once the company is able to. The note, which has $2 billion outstanding, is callable beginning in August 2019 subject to a 150% hurdle.

Array upsizes exchange

Array’s privately negotiated exchange agreement for new 2.65% convertible notes due 2024 has been upsized to $126.06 million from the initially announced $107 million.

The new notes will be swapped for the company’s outstanding 3% convertible notes due 2020 with the additional premium covered by shares.

The deal was structured to avoid the equity dilution that would have resulted if the company called the bond, said Jason Wood, founder of J. Wood Capital Advisors, who helped structure the exchange.

“The convert was callable and deep in the money,” Wood said.

However, Array would have needed to deliver about 19 million shares if it exercised its call option on the 3% convertible notes. Through the exchange agreement, Array was able to deliver new paper and about 8 million shares, saving 11 million shares in equity dilution, Wood said.

The 2.65% convertible notes carry an initial conversion premium of 32.5%, are non-callable for four years, then provisionally callable if they reach a 130% hurdle.

Array stock was down 2.04% to $11.285 at market close on Monday. Short selling related to the exchange agreement pushed stock prices up on Friday, a market source said.

Spirit Realty sees heavy volume

Spirit Realty’s 2.875% convertible notes due 2019 were among the top traded names during Monday’s session as the company confidentially submitted a registration statement on Form 10 to the SEC about the company’s planned spin-off.

More than $14.47 million of the 2.875% convertible notes were in play by late afternoon. However, there was little movement in prices and the note closed the session at 100.188, as the stock closed at $8.5, a decrease of 0.93%.

With the SEC filing, Spirit Realty took another step forward in its planned spin-off of certain assets into Spirit MTA REIT, which the company plans to complete in 2018, according to a company release.

In August, Spirit announced its plan to spin-off all of its properties leased to Shopko and its assets that collateralize Master Trust 2014, which is part of Spirit’s asset-backed securitization program, into a separate real estate investment trust.

Mentioned in this article

Intel Corp. Nasdaq: INTC

Array BioPharma Inc. Nasdaq: ARRY

Spirit Realty Capital Inc. NYSE: SRC

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