Redfin down outright, expands dollar-neutral; Microchip active post-earnings; IAC improves

By Abigail W. Adams

Portland, Me., Aug. 10 – The convertibles space rounded out the week quietly with trading volume light as equity markets struggled, indicated by an approximately 200 point decline in the Dow Jones industrial average.

There was $60 million of convertibles on the tape early in the session and about $230 million on the tape late in the afternoon.

Microchip Technology Inc.’s convertible notes were in focus with the notes dropping 11 to 13 points outright with the stock down more than 11% post first-quarter earnings.

Illumina, Inc.’s 0% convertible notes due 2019 were also volume leaders on Friday with the notes continuing to trade a couple points above parity.

After dominating trading activity on Thursday, Rapid7 Inc.’s newly priced 1.25% convertible notes due 2023 saw few bonds change hands during Friday’s session.

While largely unchanged dollar-neutral, the notes were down on an outright basis as the stock reversed course, a market source said.

Redfin Corp.’s recently priced 1.75% convertible notes due 2023 traded down to their lowest outright price since hitting the market as stock plummeted after the company’s earnings announcement.

While down outright, the notes expanded dollar-neutral, sources said.

IAC FinanceCo Inc.’s 0.875% convertible notes due 2022 were up on both an outright and dollar-neutral basis as the company’s stock rose after an earnings beat.

Microchip’s earnings

Microchip’s convertible notes were actively traded on an otherwise quiet day on Friday. The equity-sensitive convertible notes were down on an outright basis as the stock plummeted post first-quarter earnings.

With more than $18.5 million bonds on the tape by mid-afternoon, Microchip’s 1.65% convertible notes due 2027 were the most actively traded name of the day.

They dropped more than 11 points to trade at 112.86 versus an equity price of $87.31, according to a market source.

Microchip’s 2.25% convertible notes due 2037 were down more than 13.5 points outright to trade at 114.4 versus an equity price of $86.14.

Microchip stock closed Friday at $87.41, a decrease of 10.88%.

While Microchip posted a second-quarter earnings beat of $1.61 per share versus analyst expectations for earnings of $1.48 per share, the semiconductor company disclosed problems with accounting practices at recently acquired Microsemi.

Microsemi inflated its revenue figures with excessive shipments to distributors and manufacturers, which was partly responsible for Microchip’s lowered sales guidance, chief executive officer Steve Sanghi said on the conference call, Investor’s Business Daily reported.

Microchip also warned that trade war tensions with China would impact its chip sales.

Illumina active

Illumina’s 0% convertible due 2019 were also among the most actively traded of the day with almost $13 million of the bonds on the tape by mid-afternoon.

The notes were seen trading at 132.786 with the stock down about 1%. Illumina stock closed Friday at $330.25, a decrease of 0.97%.

The notes usually trade with about 2.5 points of premium, or 2.5 points above parity, a market source said. The levels were improved slightly in Friday’s activity.

Rapid7 slows

After dominating trading activity in the secondary space, Rapid7’s new 1.25% convertible notes due 2023 were slow to trade on Friday.

While the notes held their dollar-neutral expansion, they were down on an outright basis as the stock reversed course and gave up its Thursday’s gains.

The notes were seen at 101¾ bid, 102 ½ offered on Friday.

Rapid7 stock closed Friday at $31.80, a decrease of 3.31%.

The 1.25% notes performed well on their Thursday debut. They expanded 1.5 to 2 points dollar-neutral and traded up 3 to 3.75 points outright.

Redfin expands

Redfin’s recently priced 1.75% convertible notes due 2023 were “getting crushed” on Friday on an outright basis, a market source said.

The notes were trading at their lowest outright levels since hitting the market in mid-July as the stock plummeted after the online real estate brokerage reported second-quarter earnings.

The notes traded down to 92.5 early Friday with stock down more than 15%. They closed Thursday at 98.

They were seen at 91½ bid, 92 offered in the afternoon.

The notes were expanding dollar-neutral. Sources pegged the expansion between 0.5 point and 2 points.

The notes should have traded down 8 points on a dollar-neutral basis but only moved down 6, a market source said.

“They did what they should do,” a market source said.

The notes were quoted down almost 10 points outright to 88.75 at the market close. Redfin stock closed Friday at $17.96, a decrease of 22.39%.

The online real estate brokerage’s stock dropped after the company reported its second-quarter earnings.

While Redfin beat analyst expectations with earnings per share of 4 cents versus analyst expectations for 2 cents, it predicted lower revenue for the third quarter due to a weaker real estate market.

However, the move in the stock was not connected to the company’s credit, a market source said.

IAC improves

IAC’s 0.875% convertible notes due 2022 were up on an outright and dollar-neutral basis after the media and internet holding company reported a large earnings beat.

The 0.875% notes traded up about 5.5 points outright. They were seen changing hands at 134.70 versus an equity price of $193.19 late in the session.

The notes were expanded about 0.75 point dollar-neutral, a market source said.

IAC stock closed Friday at $193, an increase of 5.7%.

IAC reported second-quarter earnings of $2.32 per share versus analyst expectations for earnings of 82 cents per share.

Mentioned in this article:

IAC FinanceCo Inc. Nasdaq: IAC

Illumina, Inc. Nasdaq: ILMN

Microchip Technology Inc. Nasdaq: MCHP

Rapid7 Inc. Nasdaq: RPD

Redfin Corp. Nasdaq: RDFN

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