By Abigail W. Adams
Portland, Me., Dec. 1 – The convertibles market was quiet on Friday with only $362 million on the table by late afternoon, but chipmakers remained the focus of trading activity, according to a market source.
The recent Morgan Stanley report that sent the convertible notes and underlying equities of many companies tied to the semiconductor sector tumbling was amplified by Credit Suisse analysts who warned the recent sell-off of chipmakers’ stock might not be short-lived.
Lam Research Corp.’s 2.65% convertible notes due 2041 tumbled another 24 points on Friday after losing 52 points the day before.
Other semiconductor companies that have been stalwarts of the convertibles space, such as On Semiconductor, Micron Technology, Inc., and NXP Semiconductors NV, were actively traded during the session.
Most were able to hold their ground, relatively speaking, with only 3 to 4 point losses after large dips earlier in the week. NXP Semiconductors’ 1% convertible notes due 2019 appeared to be largely unscathed as others in the industry grappled with declining values.
GNC Holdings, Inc.’s beleaguered 1.5% convertible notes due 2020 regained some footing on Friday after falling to their lowest point yet on Wednesday after the company withdrew its proposed offering of a $500 million five-year high-yield bond.
China Lodging Group Ltd.’s 0.375% convertible notes due 2022 also regained some footing on Friday after sinking to new lows earlier in the week.
Semiconductors in focus
Semiconductors remained the focus of trading activity on Friday after the sector took a beating earlier in the week,
Many companies experienced a sell-off after a Morgan Stanley report warned the semiconductor cycle that has meant spectacular growth for some companies may soon reverse due to falling NAND memory prices.
Credit Suisse analysts released a report on Thursday that warned the sell-off might not be as temporary as some would like it to be. The recovery from this week’s sell-off may take much longer than the sell-off that occurred in 2016, according to the research note.
Lam’s 2.65% convertible notes continued their nosedive on Friday losing another 24 points by the end of the day. Trading of the notes dipped as low as 547 during the session but they were pulled up to 558.38 in the last trade of the day, according to Trace data.
Lam stock closed on Friday at $187.81, a decrease of 2.35%.
On Semiconductor also saw some activity on Friday with the company’s 1% convertible notes due 2020 dropping about 3 points to end the day at 122.5, according to Trace data.
The notes were trading in the 129 to 130 range last week. The company’s 1.625% convertible notes due 2023 were down about a point to trade at 119, according to a market source.
On Semiconductor’s stock was also down at Friday’s close dropping to $19.86, a decrease of 1.1%.
NXP Semiconductors’ 1% convertible notes regained some footing during the trading session, climbing to 122.194 by market close after ending the day Thursday at 120.
The convertible notes appeared to emerge largely unscathed from the recent skepticism surrounding the semiconductor sector with 122 to 124 the typical trading range for the notes.
NXP stock also regained some footing closing Friday at $114.78, an increase of 1.23%. The company’s stock dropped to $113 earlier in the week in the midst of the sell-off.
Micron Technology’s 3% convertible notes due 2043 continued to slip alongside their equity losing 4 points during Friday’s session to end the day at 144.272, according to Trace data. Micron stock ended the day at $41.99, a decrease of 0.94%.
While Micron stock was one of the hardest hit in the sector, losing 13% since the sell-off on Wednesday, the Morgan Stanley analysis did not see dropping NAND memory prices as having an impact on Micron.
Ironically, Morgan Stanley raised their price target for Micron based on projected earnings growth from DRAM products.
GNC’s small gain after a large fall
GNC’s 1.5% convertible notes due 2020 rose to 50.45 on Friday after stumbling to their lowest point on Wednesday. The notes had tumbled to 42 and 43 on Wednesday after previous trades in the 58 range, a market source said.
GNC stock continued its downward trend ending the day Friday at $5.39, a decrease of 3.14%.
GNC withdrew its proposed $500 million five-year high-yield bond offering on Monday, which had been struggling, Prospect News reported. Instead, the health, wellness and performance products company shifted the proceeds to a concurrent bank loan deal to refinance debt.
Some traders felt the five-year secured notes would be bad news for the 1.5% convertible, which sunk to the 58 range from its 70 target after the proposed deal was announced.
Other traders said the deal falling apart was bad for the convertible, which sunk to new lows after GNC pulled the $500 million offering.
Still others said GNC’s 1.5% convertible notes were in a “damned if you do, damned if you don’t,” situation.
“The bond’s been in free fall. It’s been a mess for awhile,” a market source said. The slight upswing on Friday may be little cause for optimism.
In lieu of the $500 million offering, GNC is proposing a $300 million B-1 term loan due 2020 and $905 million B-2 term loans due 2021, which Fitch Ratings assigned a BB-/RR2 rating to.
“GNC’s inability to successfully complete the refinancing as proposed and address upcoming debt maturities in a timely fashion would be a rating concern,” Fitch said
China Lodging inches up
China Lodging Group’s recently issued 0.375% convertible notes due 2022 traded up during Friday’s session after reaching their lowest point on Wednesday since their late October release.
The notes had sunk to 94 on Wednesday after the Shanghai, China-based hotel group released its third quarter earnings report, which beat analyst expectations for earnings per share but reflected light revenue and future guidance.
The notes traded up to 97 but ended the day at 96, according to Trace data. The company’s stock ended the day at $107.53, an increase of 1.38%.
Mentioned in this article:
| Lam Research Corp.: | Nasdaq: LRCX
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| Micron Technology, Inc.: | Nasdaq: MU
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| NXP Semiconductors NV: Nasdaq: NXPI
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| ON Semiconductor Corp.: Nasdaq: ON
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| GNC Holdings, Inc.: | NYSE: GNC
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| China Lodging Group: | Nasdaq: HTHT
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