New convertible paper drifts from focus; Lumentum, Anthem active; trading volume light

By Abigail W. Adams

Portland, Me., July 20 – The new convertible notes that priced over the past week drifted out of focus on Friday as long-standing issuances emerged as volume leaders.

While there was about $75 million on the tape early in the session, trading volume dwindled into the afternoon with most getting business done early in preparation for the weekend.

There was about $247 million on the tape by late afternoon, with not much more expected, sources said.

Lumentum Holdings Inc.’s 0.25% convertible notes due 2024 were a volume leader on Friday with the notes dropping outright but seeing a dollar-neutral expansion as stock got hit on trade war tensions.

Anthem Inc.’s 2.75% convertible notes due 2042 were also active due to a large outright seller, a market source said.

Cleveland-Cliffs Inc.’s 1.5% convertible notes due 2025 made large outright gains on Friday with stock surging almost 13% after the company reported its second-quarter earnings.

Lumentum in focus

Lumentum Holdings’ 0.25% convertible notes due 2024 were among the volume leaders and major price movers on Friday as stock got pummeled alongside other optics components makers with minglings in China.

The notes were down between 4 and 6 points outright with stock off more than 8% on Friday.

The notes were seen trading at 113.5 versus an equity price of $54.00 early in the session, according to a market source. The notes gained some ground into the afternoon and were seen trading at 115.5.

The 0.25% notes were expanded about 0.5 point dollar-neutral, a market source said.

Lumentum stock closed Friday at $54.40, a decrease of 8.42%.

The notes previously traded at 120, according to Trace data.

The optical components makers’ stock took a hit on Friday on trade war tensions with China as president Donald Trump signaled an escalation on tariffs, MarketWatch reported.

Lumentum, a Milpitas, Calif.-based optical components maker, has a 23% revenue exposure to China, CNBC previously reported.

Lumentum is in the process of acquiring Oclaro Inc. for $1.8 billion with Oclaro shareholders giving the greenlight for the acquisition on July 10, according to an 8-K filing with the Securities and Exchange Commission.

In addition to broader revenue exposure to China, Lumentum and Oclaro also garner a portion of their sales revenue from Shenzhen, China-based ZTE Corp.

ZTE has become a bargaining chip in trade war talk after the U.S. Dept. of Commerce banned U.S. companies from doing business with the company in April.

The ban was due to ZTE’s violation of a sanctions agreement after the company pleaded guilty to illegally shipping U.S. technology to North Korea and Iran.

The ban was terminated on July 13, according to a U.S. Department of Commerce order.

Lumentum gets 2% to 3% of its sales revenue from ZTE and Oclaro 14%, Investor’s Business Daily reported.

Anthem active

Anthem’s 2.75% convertible notes due 2042 were also active on the tape on Friday. The notes, which trade at triple par, are essentially an equity surrogate, a market source said.

The notes were seen trading at 342. Anthem stock closed Friday at $248.52, a decrease of 0.05%.

Only about 1/3 of the original $1.5 billion issue amount remains outstanding with many holders already having converted them out, a source said.

The activity on Friday was due to an outright seller unloading a large amount of the notes, a market source said.

Cleveland-Cliffs jumps

Cleveland-Cliffs’ 1.5% convertible notes due 2025 also saw large gains on an outright basis as stock surged after the Cleveland-based mining company reported second-quarter earnings.

The notes rose more than 9 points outright. They traded as high as 137 during Friday’s session, according to Trace data.

The notes were quoted at 133.68 at the market close on Friday after closing on Thursday at 124.27, according to a market source.

Cleveland-Cliffs stock closed Friday at $9.96, an increase of 12.67%.

Cleveland-Cliffs reported non-GAAP earnings of 76 cents for the second quarter, which beat analyst expectations of 56 cents.

Mentioned in this article:

Anthem Inc. NYSE: ANTM

Cleveland-Cliffs Inc. NYSE: CLF

Lumentum Holdings Inc. Nasdaq: LITE

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