Convertibles open week firm; GDS on tap; Square expansion continues; Herbalife active

By Abigail W. Adams

Portland, Me., May 29 – The convertibles secondary market was firm on the return from the Memorial Day weekend despite the tumult in equities with the Dow Jones industrial average closing Tuesday down 391 points.

Sources attributed the firmness to the strength of the bond market, which has pushed the 10-year Treasury below a 3% yield.

While new deal volume is not expected to match the high volume of the past two weeks, the tumult in equities did not deter the primary market from launching a new deal.

GDS Holdings Ltd. plans to price $250 million of seven-year convertible notes after the market close on Wednesday with price talk for a coupon of 1.75% to 2.25% and an initial conversion premium of 30% to 35%, according to a market source.

Citigroup Global Markets Inc., J.P. Morgan Securities LLC and RBC Capital Markets LLC are the joint bookrunners for the Rule 144A and Regulation S deal, which carries a greenshoe of $50 million.

The $5 billion in new paper that has hit the market over the past two weeks has, at times, weighed heavy on balanced convertible notes with many seen contracted. However, names were holding on Tuesday.

“It’s a firm tone, even with all the new issuance,” a market source said.

Square Inc.’s recently priced 0.5% convertible notes due 2023 remained active on Tuesday and continued their expansion.

FireEye Inc.’s recently priced 0.875% convertible notes due 2024 were down slightly on an outright basis to return to the 98 range. However, they were largely trading sideways dollar neutral, a market source said.

NRG Energy Inc.’s recently priced 2.75% convertible notes due 2048 continued to hold in active trading on Tuesday, maintaining their 0.75 point dollar-neutral expansion, a market source said.

Meanwhile, Micron Technology Inc.’s 2.375% convertible notes due 2032 were in focus and climbing in lock-step with its underlying equity, which hit a new 52-week high in intra-day trading.

Herbalife Nutrition Ltd.’s 2% convertible notes due 2019 were also a major volume mover of Tuesday’s session.

Square’s expansion

Square’s recently priced 0.5% convertible notes due 2023 made gains on an outright and dollar-neutral basis on Tuesday.

The 0.5% convertible notes were up about 2 points outright to trade at 104 with the stock up almost 4% early in the session.

Trading tempered as stock began to pull back. The notes were seen at 103.5 mid-afternoon with the stock up about 2%.

Square’s stock closed Tuesday at $56.92, an increase of 2.06%.

The notes expanded another 0.75 point dollar neutral on Tuesday and are up 2.25 points dollar neutral from issuance, a market source said.

Square priced $750 million of the five-year convertible notes on May 22 with the greenshoe later exercised in full, lifting the size of the deal to $862.5 million.

The 0.5% convertible notes have performed well since hitting the secondary market, making gains on both an outright and dollar-neutral basis.

The deal was lightly hedged with only about $150 million of the original amount put up on swap, sources said.

FireEye sideways

FireEye’s recently priced 0.875% convertible notes due 2024 were down slightly on an outright basis on Tuesday.

The notes dropped back into the 98 range and were seen trading between 98.5 and 98.75 with stock down about 1%.

FireEye’s stock closed Tuesday at $16.40, an increase of 0.97%.

The 0.875% convertible notes were moving in line dollar neutral, a market source said.

The notes have traded below par since hitting the market on May 22.

They have largely traded sideways on a dollar-neutral basis since pricing, a market source said.

FireEye priced $525 million of six-year convertible notes on May 21.

Out of the nine convertible bond deals that priced in the past two weeks, FireEye is the only one with a greenshoe that has not yet been exercised.

NRG holds

NRG Energy’s recently priced 2.75% convertible notes due 2048 continued to garner attention in the secondary market.

The notes were quoted at 100.75 bid, 101.25 offered versus a stock price of $33.84, according to market source.

“They’re still holding,” the source said. The notes were seen trading toward the offer side.

NRG Energy’s stock closed Tuesday at $33.72, a decrease of 0.77%.

The 2.75% convertible notes have expanded 0.75 point dollar neutral since pricing, the source said.

NRG Energy priced $500 million of the 30-year convertible notes on May 21 with the greenshoe later exercised in full, lifting the size of the deal to $575 million.

The notes briefly dipped below par their second day in the market but rebounded later in the week alongside the stock.

While NRG’s stock was off on Tuesday, sources attributed the firmness of the notes to the strength of the bond market.

Volume movers

Micron’s 3% convertible notes due 2043 were in focus on Tuesday and making gains as the underlying equity broke out to a new 52-week high in intraday trading.

The 3% convertible notes climbed 5 to 8 points outright to trade to a low of 215 and a high of 218.5, according to Trace data.

Micron stock traded to a low of $61.35 and a high of $63.98 before closing the day at $62.62, an increase of 2.07%.

Herbalife’s 2% convertible notes due 2019 also saw high-volume trading on Tuesday. The 2% notes continued to trade in the 121 to 122 range with the stock up.

Herbalife’s 2.625% convertible notes due 2024 saw only scattered trades on Tuesday with the notes solidified around 101, according to Trace data.

Herbalife’s stock closed Tuesday at $49.06, an increase of 0.74%.

Herbalife has been an active name in the convertible space since Friday with the 2% notes down 7 points outright and 2.625% convertible notes down 4 points outright as the stock dropped more than 9%.

Herbalife’s stock tanked on Friday on news Icahn Enterprises was reducing its holding in the company.

It appeared that holders were moving from the longer duration to the shorter duration notes on Friday, a market source said.

Mentioned in this article:

FireEye Inc. Nasdaq: FEYE

GDS Holdings Ltd. Nasdaq: GDS

Herbalife Nutrition Ltd. NYSE: HLF

Micron Technology Inc. Nasdaq: MU

NRG Energy Inc. NYSE: NRG

Square Inc. NYSE: SQ

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