Market eyes Intelsat convertibles offering; Citrix in focus; Synaptics active; Aerojet contracts

By Abigail W. Adams

Portland, Me., June 11 – The convertibles primary market kicked Monday off with a new offering from a well-known name in junkbondland.

Intelsat SA planned to price $300 million of seven-year convertible notes after the market close on Monday. Initial price talk was for a coupon of 4.75% to 5.25% with an initial conversion premium of 17.5% to 22.5%.

However, the deal was expected to be upsized and price richer than the coupon talk due to high demand, a market source said.

Meanwhile, trading activity on Monday focused on long-standing issuances.

Citrix Systems, Inc.’s 0.5% convertible notes due 2019 were volume leaders on Monday with more than $50 million of the bonds on the tape by late afternoon, according to a market source.

The high-volume trading comes just days before Citrix’s 0.5% notes are removed from the Thompson Reuters convertibles indices.

While Citrix’s 0.5% convertible notes are among the usual suspects on the tape, Aerojet Rocketdyne Holdings Inc.’s 2.25% convertible notes due 2023 are not.

However, Aerojet’s 2.25% notes were active on Monday with a seller putting some notes on the table, a market source said.

Synaptics Inc.’s 0.5% convertible notes due 2022 were also active during Monday’s session and continued to see gains on an outright basis after news broke that the company is in early merger negotiations with Dialog Semiconductor.

Intelsat’s deal

Intelsat’s offering of $300 million of seven-year convertible notes looks cheap and was more than 3x oversubscribed at the rich end of talk, sources said.

The deal is being marketed with a credit spread of 1,200 basis points over Libor and a 45% vol., according to a market source.

The deal models “way cheap using that high a spread,” a market source said.

There were $1.6 billion in orders at the cheap end of talk, $1.4 billion in orders at the midpoint of talk and $1 billion in orders at the rich end of talk, a source said.

The deal is expected to be upsized and price richer than talk with a coupon of 4.5%, due to the heavy demand during bookbuilding, the source said.

Intelsat is a serial issuer of high-yield senior notes and has more than $13 billion of debt outstanding with a market cap of $2 billion.

The company deserves the wide credit spread underwriters are using given its exposure in the international markets, a source said.

However, others felt the credit spread underwriters used was conservative. “It’s a tough one because there’s so much debt,” a market source said.

However, Intelsat’s outstanding debt has been trading OK and, with $13 billion outstanding, another $300 million bond “is a drop in the bucket,” the source said.

“In this situation, (the credit) doesn’t matter as much as the volatility and premium,” the source said.

The volatility on Intelsat stock “is through the roof,” the source said.

Intelsat stock has gained more than 300% in the past two months. The convertible notes offering “is the only way to play the stock,” a market source said.

However, the borrow “is a little funky,” the source said. There are only a couple million shares available for borrow on U.S. exchanges and the short interest is high, a source said.

The convertible notes are being offered concurrently with a $200 million common share offering.

The concurrent equity offering is a plus and will serve as a good stabilizing factor, the source said.

Citrix in focus

Citrix’s 0.5% convertible notes due 2019 were in focus on Monday with more than $50 million of the bonds changing hands over 13 trades, according to a market source.

The notes were seen trading at 148.65 versus an equity price of $106.84. They were largely trading at parity, a market source said.

Citrix is a highly liquid name that is usually on the tape, a source said. However, the high-volume trading on Monday was above average.

The activity comes just days before Citrix’s 0.5% convertible notes are dropped from the Thomson Reuters convertibles indices on June 13.

There will be a higher than average number of drops and additions to the indices this week with several of the deals that priced in May joining, a market source said.

Aerojet contracts

Aerojet’s 2.25% convertible notes due 2023 were active in the secondary space on Monday with about $8 million of the bonds traded by late afternoon.

While the notes were up about 1 point outright, they were contracting on a dollar-neutral, or hedged, basis, a market source said.

The notes were seen trading at 132 versus an equity price of $29.68. They were coming in about 1 point dollar neutral, a source said.

Aerojet stock closed Monday at $30. 18, an increase of 1.04%.

The trading activity did not appear to be connected to company news but rather a holder that wanted to put some bonds on the table, a market source said. “There was a reasonable seller,” the source said.

Synaptics gains

Synaptics’ 0.5% convertible notes due 2022 were among the volume leaders of Monday’s session with about $15 million of the bonds on the tape by late afternoon.

The notes continued to make gains on an outright basis. They were seen up about 1 point after about a 4-point climb on Friday.

The 0.5% notes were seen trading at 96.637 versus an equity price of $48.00 during Monday’s session. The notes opened Friday in the 92 range.

Synaptics’ notes have climbed alongside stock since Friday when news broke the San Jose, Calif.-based developer of touchpads is in early stage negotiations to merge with U.K.-based Dialog Semiconductors.

Synaptics’ stock closed Friday up almost 11%.

Stock closed Monday at $48.29, an increase of 2.37%.

Synaptics’ stock was $55.11 when the 0.5% convertible notes priced in June 2017.

Mentioned in this article:

Aerojet Rocketdyne Holdings Inc. NYSE: AJRD

Citrix Systems, Inc. Nasdaq: CTXS

Intelsat SA NYSE: I

Synaptics Inc. Nasdaq: SYNA

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