Morning Commentary: Illumina holds; Ares Capital leads trading; Canopy Growth climbs

By Abigail W. Adams

Portland, Me., Aug. 20 – The convertible secondary space opened the week quietly with the trading frenzy surrounding Illumina Inc.’s newly priced 0% convertible notes due 2023 tempering.

While not as active, the 0% convertible notes continued to trade up on an outright basis.

They were seen changing hands at 102.9 early in Monday’s session with stock up slightly to $326.35, an increase of 0.14%. The notes were up on an outright and dollar-neutral basis on their market debut on Friday, sources said.

Illumina priced $650 million of five-year notes with a coupon of 0% and an initial conversion premium of 40% after the market close on Aug. 16.

Pricing matched talk for a coupon of 0% and came at the midpoint of talk for an initial conversion premium of 37.5% to 42.5%.

“Not too many guys can do that,” a market source said of the pricing, “but these guys can.” Illumina is a quality company and a solid credit, the source said.

Meanwhile, Ares Capital Corp.’s 4.375% convertible notes due 2019 were the volume leaders early in Monday’s session with more than $13 million of the bonds changing hands over three trades. The notes traded between 100.25 and 100.375 with stock largely flat around $17.30.

Canopy Growth Corp.’s 4.25% convertible notes due 2023 continued to climb on an outright basis on Monday after a meteoric rise last week.

The 4.25% notes traded at 114.75 bid, 115 offered early Monday as the medical and recreational cannabis company’s stock continued to climb.

While the notes expanded about 3 points last week, they were largely moving in line on a dollar-neutral basis on Monday, a market source said.

Canopy Growth’s stock was up another 6% on Monday. Canopy Growth’s convertible notes and stock jumped last week after Constellation Brands, Inc. announced a C$5 billion investment in the company.

The investment “really establishes a firm bond floor,” a market source said.

With Constellation Brands a $39 billion market cap company, the investment is giving Canopy a solid credit backstop, the source said.

Canopy’s 4.25% convertible notes jumped more than 13 points outright to 108 from about 95 as stock jumped more than 30% on Aug. 15 after the investment was announced. The notes have continued to climb since.

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