Newmont, Tesla remain weaker; Microchip adds on hedge; Exelixis up; Oclaro taps market

By Rebecca Melvin

New York, Feb. 13 – Newmont Mining Corp.’s convertibles were active again Friday, as has been the case for much of the week, with the bonds remaining weaker despite higher shares for the Denver-based gold and copper mining company.

Tesla Motors Inc.’s convertibles also remained weak, slipping another 0.25 point on a dollar-neutral, or hedged, basis with shares remaining listless after the Palo Alto, Calif.-based electric car maker posted disappointing earnings that sent its shares lower on Thursday.

But there was outright buying of Microchip Technology Inc. that pulled the Chandler, Ariz.-based semiconductor company’s week-old convertibles up on swap by 0.375 point, a New York-based trader said.

The Microchip convertibles traded at 103, with the underlying shares at $50.71, compared to late Monday when the bonds were 98.7 with shares down 1.6% at $47.88.

Also improving on the week was Jarden Corp., which saw its convertibles strengthen on the back of its earnings that were in line with expectations.

In particular, the Jarden 1.875% convertibles due 2018 improved, a trader said. The Jarden 1.875% bond changed hands on Friday at 166 against a closing share price of $51.88. On Monday, the bond had traded down to 159.80 with the shares at $48.74.

Elsewhere, Exelixis Inc. was trading actively on Friday and up as much as 2 points to about 70, with shares up 9% at $2.48. Shares rose significantly this past week.

Overall, the secondary market was fairly active on Friday, as market players were seen positioning “ahead of Greek vol.,” a trader said, and ahead of a three-day holiday weekend in the United States.

Investors anticipate potential volatility sparked by what comes out of a meeting of euro zone financial ministers on Monday regarding Greek debt. Technical talks began in Brussels on Friday. Meanwhile, U.S. financial markets will be closed on Monday for Presidents Day.

In the primary market, Oclaro Inc.’s newly priced 6% convertibles were quiet Friday after the San Jose, Calif.-based optical components maker priced $55 million of the five-year senior notes at the midpoint of coupon talk and beyond the rich end of premium talk.

The week’s other new deals were relatively small and didn’t trade actively in the secondary market. Global Eagle Entertainment Inc.’s 2.75% convertibles due 2035 traded around issue price on Thursday after the Westlake, Calif.-based in-flight video and e-commerce company priced $75 million of the 20-year senior notes at the midpoint of coupon talk and beyond the rich end of premium talk.

Also pricing was a tiny $6 million issue of convertible preferred stock from Harvard Apparatus Regenerative Technology Inc.

Internationally, pricing on Regulation S deals from Japan and Australia emerged. Chugoku Electric Power Co. Inc. priced ¥100 billion of 0% convertible bonds in two equally divided tranches of three-year and five-year paper, with pricing accomplished at the tight end of premium talk, and Paladin Energy Ltd. priced $100 million of 7% five-year convertible bonds, which came at the cheap end of talked terms for a 6.5% to 7% coupon and a 25% to 30% premium.

Newmont weaker

The Newmont 1.625% bond traded at 103.5 in the early going Friday, which was unchanged on an outright basis. But shares popped as much as 2% early in the day and remained 1% higher at the close at $24.78 most recently. On Wednesday, the Newmont bonds were quoted at 104 versus an underlying share price of $24.20.

On Thursday, the Newmont bond was also trading and quoted down 0.69 point on a dollar-neutral, or hedged, basis.

The bond is considered rich for investors, with a negative yield and very high premium.

A New York-based trader said, “I think guys are starting to realize” how rich the bond is.

Higher Treasury yields this week were an added negative for the bond. The 10-year Treasury yield was hovering around 2%, which is up for the week, although still significantly lower than at the end of December.

Meanwhile Newmont shares remain elevated since the middle of last month when gold prices rallied.

“Once dealers, who are short, finish covering, pricing may normalize,” the trader said.

Oclaro prices

Oclaro priced $55 million of five-year convertible senior notes at par to yield 6% with an initial conversion premium of 33.6%. The new bonds were not heard trading in the secondary market on Friday.

The small deal for the San Jose, Calif.-based optical components maker priced at the midpoint of 5.75% to 6.25% coupon talk and beyond the rich end of premium talk, which was 25% to 30%.

Jefferies & Co. was the bookrunner of the deal, which has a $10 million greenshoe.

If the notes are convertible before Feb. 15, 2018, investors will receive the present value of the remaining interest payments.

The bonds are non-callable until Feb. 15, 2018 and then provisionally callable if shares exceed 130% of the conversion price. There is dividend and takeover protection.

Proceeds are earmarked for general corporate purposes, including working capital.

Mentioned in this article:

Chugoku Electric Power Co. Inc. Japan: 9504

Exelixis Inc. NYSE: EXEL

Global Eagle Entertainment Inc. NYSE: ENT

Harvard Apparatus Regenerative Technology Inc. Nasdaq: HART

Jarden Corp. NYSE: JAH

Microchip Technology Inc. Nasdaq: MCHP

Newmont Mining Corp. NYSE: NEM

Oclaro Inc. Nasdaq: OCLR

Paladin Energy Ltd. Australia: PLD

Tesla Motors Inc. Nasdaq: TSLA

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