Illumina convertibles slip in active trade; Chefs’ Warehouse plans $130 million offering

By Rebecca Melvin

New York, Nov. 18 – Illumina Inc.’s 0.5% convertibles due 2021 were a little lower in active trade on Monday as U.S. convertible players begin to stare down year-end and the prospects of whether 2019’s stellar stock gains will hold until then.

Illumina’s 0.5% convertibles were lower by nearly a point on an outright basis, ending the day at about 131.5, with the underlying stock closing up 69 cents, or 0.2%, to $306.67.

The move seemed to be motivated by profit-taking as Illumina’s common shares have been moving up for the last week and a half after taking a plunge at the end of October.

“ILMN isn’t always one of the active names, so [profit-taking] seems like what is going on there,” a New York-based portfolio manager said regarding Illumina’s move on Monday.

Also on Monday, Chefs’ Warehouse Inc. announced after the market close that it plans to sell $130 million of five-year convertibles, which were being talked to yield 1.375% to 1.875% with an initial conversion premium of 32.5% to 37.5%, according to market sources late Monday.

Proceeds of the Rule 144A deal will be used to pay down the specialty food products distributor’s $43.2 million principal amount remaining outstanding of loans under its asset-based loan facility, for working capital and for general corporate purposes, which may include acquisitions.

Jefferies LLC and BMO Capital Markets Corp. are joint bookrunners of the offering that was expected to price after the market close on Tuesday.

The notes are non-callable for life with no puts. The notes will be physically settled.

On Monday, the major stock indices eked out another round of record highs, albeit small ones, with the S&P 500 stock index up only 1.55 points on the day, while the Dow Jones industrial average added 31.26 points, or 0.1%, and the Nasdaq added 9.11 points, or 0.1 %. But for the year to date, the S&P 500 is up 24%, the Dow is up 20% and the Nasdaq is up 28%.

Stocks have put in amazing gains, a New York-based trader said of the year’s stock market performance.

But the convertibles market was generally quiet on Monday, the secondary market traded on light volumes and there was no new issuance announced.

Becton Dickinson and Co. was the most actively traded mandatory in that space, and that paper was looking in line with its recent swap market, with shares at $59.75. Becton Dickinson stock was down $2.81, or 1.1%, at $245.45.

In addition to Illumina among bonds, Ares Capital Corp.’s two convertibles issues were active. Ares like Illumina has issued multiple convertible bonds but only has two issues outstanding currently.

The Ares 3.75% convertibles due 2022 saw $11.36 million of bonds changing hands and were last at 103.625, which was up 0.325 point on the day.

The Ares 4.625% convertible due 2024 was the more actively traded bond of the two, with the issue seen printing at 106.5 and 106.6 early Monday, which was flat to lower on an outright basis compared to recent trades.

Sea Ltd.’s 1% convertibles also continued to see some trade and they were up at 103 last with the underlying common up 2% at $37.12. Sea’s $1 billion of notes priced last week.

U.S. convertibles were trading mildly in light volume early Monday as market players sized up the broader markets, watching U.S. Treasuries and other sectors like utilities mount a bit of a reversal, a New York-based trader said.

Renewed uncertainties about the prospects of a U.S.-China trade deal and news of a meeting between the White House and Federal Reserve chairman Jerome Powell may have sparked a bid in U.S. Treasuries, the trader said.

Powell met with president Donald Trump and Treasury secretary Steven Mnuchin on Monday to discuss the economy, according to a statement from the Federal Reserve.

The possibility of negative interest rates was discussed, and that was unexpected, the trader said.

Last week, Powell told lawmakers the central bank saw little need to cut interest rates further after making three reductions since July.

“We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labor market” and stable inflation, Powell told Congress’s Joint Economic Committee on Wednesday.

Powell has consistently stressed that the policy decisions of central bankers are non-partisan and non-political.

Mentioned in this article:

Ares Capital Corp. Nasdaq: ARCC

Becton Dickinson & Co. NYSE: BDX

Chefs’ Warehouse Inc. Nasdaq: CHEF

Illumina Inc. Nasdaq: ILMN

Sea Ltd. NYSE: SE

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