By Abigail W. Adams
Portland, Me., Dec. 8 – 2017 Mandatory Exchangeable Trust’s newly priced 5.1875% mandatory convertible securities tied to New York Times Co. stock were trading slightly above issuance after hitting the market Friday.
With a 20% initial conversion premium, the securities priced Thursday evening within talk for a coupon of 5% to 5.5% and an initial conversion premium of 17.5% to 22.5%, according to a market source.
The securities, issued at par of $100, were trading at 100.5 to 101 in the early afternoon, a market source said.
Veeco Instruments Inc.’s 2.7% convertible notes due 2023 and its underlying equity got “beat up” in trading during Friday’s session, a market source said.
Veeco stock was down 18.77% at Friday’s close after news that the Fujian High Court in China banned the company from importing, making or selling one of its flagship products in the country.
The already struggling 2.7% convertible notes dropped another 5 points during Friday’s session to end the day at 83.324, according to Trace data. Veeco’s drop was much smaller than its stock largely because “it was already pretty busted,” a market source said.
New paper from Cleveland-Cliffs Inc. continued to be in focus with the 1.5% notes due 2025 gaining to 102 on Friday after losing some steam the day before. General Cable Corp.’s 4.5% convertible notes due 2029 also remained in focus and made small gains.
The notes have been a focal point of secondary market activity since the buy-out of the company was announced on Monday.
Mandatory prices
Five banks with a stake in the New York Times formed 2017 Mandatory Exchangeable Trust and priced $250 million in mandatory convertible securities at a yield of 5.1875% and an initial conversion premium of 20% on Thursday evening.
The deal came within talk for a coupon of 5% to 5.5% and an initial conversion premium of 17.5% to 22.5%, according to a market source.
The securities were priced at par of $100.
The deal was “well oversubscribed,” a market source said. “There was a lot of demand.”
The trust’s three-year deal is the first mandatory convertible security since Crown Castle International Corp. priced $1.65 billion in July.
The mandatory securities were trading up at their market debut reaching 100.5 and 101 in the early afternoon, a market source said.
The Trust will exchange each security for between 4.6948 and 5.6338 shares per security after their maturity on Dec. 1, 2020.
The conversion rate will be determined by reference to the volume-weighted average trading price of the shares during a 40-trading day observation period ending shortly before the exchange date, according to a press release.
New York Times stock closed on Friday at $17.75, unchanged from the previous close.
Veeco gets beaten
Veeco’s stock and 2.7% convertible notes due 2023 got hammered during Friday’s session after a court ruling in China against the maker of thin film process technologies for electronic devices.
The 2.7% notes dominated trading activity during Friday’s session dropping about 5 points to close the day at 83.324. The notes were in the 88 range the day before, according to Trace data.
Veeco stock ended the day at $11.9, a decrease of 18.77%.
“It was the disaster du jour,” a market source said.
The drop in equity did not have that large an impact on the 2.7% notes because they were already busted, a market source said.
“They’re trading largely as yield instruments,” a market source said.
Yields were between 6.8% and 7%, an increase of 100 basis points with the decrease in stock, the source said. While the high yields may appear attractive, another market source warned that maturity was still a long ways off.
“It all depends on the credit risk,” the market source said.
On Thursday, the Fujian High Court in China issued a ruling on a patent infringement case against Veeco which banned the company from selling, making, or importing its EPIK 700 model MOCVD systems. The ban applies only to China.
Advanced Micro-Fabrication Equipment Inc. (AMEC), a Shanghai-based competitor, filed the compliant which alleges Veeco’s system infringes on a Chinese utility model patent. Veeco intends to appeal the ruling, according to a company release.
Veeco is also involved in patent infringement litigation in New York but as the plaintiff. Veeco filed a complaint against SGL Carbon SE alleging a patent infringement on component pieces used in Veeco’s MOCVD systems.
The complaint alleges SGL Carbon is violating Veeco’s patent by making and selling the component pieces to AMEC. In early November, the U.S. District Court in eastern New York passed a preliminary injunction prohibiting SGL Carbon from shipping the component pieces in question to AMEC.
Long focus
Cleveland-Cliffs Inc.’s recently issued 1.5% convertible notes due 2025 and General Cable’s 4.5% convertible notes due 2029 remained in focus on Friday with both gaining some strength.
The notes have been a center of secondary market activity since Cleveland-Cliffs’ new paper hit the market Wednesday and Prysmian’s acquisition of General Cable was announced Monday.
Cleveland-Cliffs’ 1.5% notes were back to 101 in early trades for the first time on Friday since they broke onto the secondary market Wednesday. The notes continued to make small gains throughout the day settling in to new heights in the 102 range.
The notes ended the day at 102.952, according to Trace data.
Cleveland-Cliffs stock was also up on Friday, ending the day at $6.41, an increase of 4.57%.
General Cable’s 4.5% notes broke 106 in early trades and remained there for most of the day, closing at 106.125, according to Trace data. The convertible notes jumped 8 points on Monday when news of the company’s acquisition by Prysmian was announced.
The notes solidified around 105 throughout the week but were gaining strength Thursday with more buyers becoming involved, a market source said.
General Cable stock was also up slightly Friday at $29.75, an increase of 0.17%.
Mentioned in this article:
| New York Times Co.: | NYSE: NYT
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| Veeco Instruments Inc.: | Nasdaq: VECO
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| Cleveland-Cliffs Inc.: | NYSE: CLF
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| General Cable Corp.: | NYSE: BGC
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