Linear Tech calls 3% convertibles; Micron gains with shares; Vipshop edges up on hedge

By Rebecca Melvin

New York, March 31 - U.S. convertibles traded quietly on the last day of the quarter Monday, with a good mix of buyers and sellers on mostly an outright basis and as equities rallied broadly, market players said.

Hedged market players were mostly quiet, and there were no discernable trends other than paring or adding to positions in response to portfolio needs, a New York-based trader said.

At the end of the session Linear Technology Corp. announced that it is calling its $845 million of 3% convertible senior notes due May 1, 2027.

"It's good news," a New York-based trader said. Due to an issue with language in the indenture, the company is redeeming the notes. In response, holders were expected to convert out of the notes over the next couple of weeks.

Micron Technology Inc.'s 3% convertibles due 2043 traded up about 4 points on an outright basis to 109.70. Shares of the Boise, Idaho-based chip maker surged 8% as technology shares joined the broader market move. Micron is due to report earnings on Thursday.

Otherwise trading was described as quiet and there were no new issues launched or priced in the primary market.

Chinese names were generally quiet, but there was some trading at the margin.

Vipshop Holdings Ltd.'s 1.5% convertibles gained a few points on an outright basis and were up a little bit on a hedged basis amid a rally in the underlying shares of the Guangzhou, China-based online discount retailer.

But YY Inc., a Guangzhou, China-based online social media company, was weak and contracted about 0.5 point on a dollar-neutral, or hedged, basis on Monday.

After the market close, McDermott International Inc. launched an offering of $250 million of tangible equity units, or 10 million units at $25.00 each, that were expected to price after the market close Tuesday.

Overall in convertibles there was a good mix of buyers and sellers, with no trend one way or the other. It seemed that outright players were putting money to work or squaring up their books before quarter end.

Volumes were light around the Street.

Equities traded up strongly as investors speculated that accommodative policies from the Federal Reserve may be forthcoming for a longer amount of time than previously thought. The change in opinion came after comments from Federal Reserve chairman Janet Yellen, In her first public speech since becoming Fed chair two months ago, Yellen said that the U.S. central bank's "extraordinary" commitment to boosting the economy would be needed for some time to come.

Earlier this month, Yellen raised concerns by saying that the period between the end of the Fed's quantitative easing program and the first rate increase from the central bank could be six months, a faster timeline than many had anticipated.

The Nasdaq stock market gained 43.23 points, or 1%, to 4,198.99; the S&P 500 stock index ended up 14.72 points, or 0.8%, at 1,872.34; and the Dow Jones industrial average rose 134.60 points, or 0.8%, to 16,457.66.

Linear calls bonds

The Milpitas, Calif.-based maker of high-performance analog integrated circuits said that it has called for redemption all $845 million of its outstanding 3% convertible senior notes due May 1, 2027, according to a press release. The redemption will take place on May 1 at par.

The notes are now convertible due to the call. Each $1,000 principal amount is convertible at a rate of 24.582054 shares, with the conversion value settled in cash and stock.

In addition, holders may request that the company repurchase their notes at par on May 1.

In the case of the call and the put, accrued interest will be paid to holders of record on April 15, the record date for the interest payment due on May 1.

"The company did the right thing," a New York-based convertibles trader said.

Vipshop adds; YY contracts

Vipshop's 1.5% convertibles due 2019, which priced March 11, traded last at 101.75 with the underlying shares at $149.30. That level was up a little bit on the day by about 0.25 point and followed the paper being a bit of a laggard last week, a trader said. Earlier in the session the paper traded at 101.375 with the shares at $147.50. The Vipshop shares gained 8%.

"They had been lagging some of the other names," a trader said.

YY was weaker however. The YY bonds were last at 96 versus an underlying share price of $76.36.

"It was definitely down by about 0.5 point on hedge," a trader said.

The divergence in pricing of the two China internet convertibles was related to supply and demand, a trader said.

"It's as simple as a supply and demand imbalance. People are more comfortable with the Vipshop credit, and YY is harder to understand," the trader said.

McDermott to price

McDermott, a Houston-based engineering, procurement, construction and installation company for offshore oil and gas projects, planned to price $250 million of tangible equity units, or 10 million units at $25.00 each, that were talked to yield 6.25% to 6.75% with an initial conversion premium of 17.5% to 22.5%, according to a syndicate source.

The registered deal, which was expected to price Tuesday after the market close, has an option for up to an additional $37.5 million of units and was being sold via Goldman Sachs & Co. as bookrunning manager.

The units will automatically settle for shares on April 1, 2017.

Proceeds from the offering, together with proceeds expected to be received from other previously announced financing transactions relating to the refinancing of its outstanding credit agreement, are for general corporate purposes, including the funding of working capital requirements and capital expenditures.

Mentioned in this article:

Linear Technologies Inc. Nasdaq: LLTC

Micron Technology Inc. NYSE: MU

RPM International Inc. NYSE: RPM

Vipshop Holdings Ltd. Nasdaq: VIPS

YY Inc. NYSE: YY

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