ON Semiconductor notes eyed; Insmed, Dynavax, LCI hit aftermarket amid market volatility

By Abigail W. Adams

Portland, Me., May 11 – New convertibles paper was in focus on Tuesday with three new offerings totaling $1.1 billion making their aftermarket debut and a $700 million offering set to price after the market close.

ON Semiconductor Corp. plans to price $700 million of six-year convertible notes after the market close on Tuesday with the company eyeing aggressive pricing terms.

While the deal modeled cheap based on underwriters’ assumptions, sources were wary of another 0% coupon bond with a high premium.

As market players eyed the new deal in the pipeline, new paper from LCI Industries, Dynavax Technologies Corp. and Insmed Inc. made their aftermarket debut on a volatile day for equities.

While equity indexes launched the day firmly in the red, the tech sector staged a dramatic rebound.

The Nasdaq composite was down more than 2% early in the session. However, it pared its losses and briefly entered positive territory before closing the day down 0.09%.

The Dow Jones industrial average closed the day down 472 points, or 1.36%, and the S&P 500 index closed the day down 0.87%.

The new paper followed different trajectories in the secondary space.

Dynavax remained firmly below par throughout the session, LCI gained on an outright and dollar-neutral basis, and Insmed was volatile, switching between outright losses and dollar-neutral gains and dollar-neutral losses and outright gains.

ON notes in focus

ON Semiconductor plans to price $700 million of six-year convertible notes after the market close on Tuesday with price talk for a fixed coupon of 0% and an initial conversion premium of 40% to 45%, according to a market source.

The deal was heard to be in the market with assumptions of 215 basis points over Libor and a 40% vol.

Using those assumptions, the deal looked 1.25 points cheap at the midpoint of talk.

Another source saw the notes as almost 3.5 points cheap at the midpoint of talk.

While the notes modeled cheap, “the pricing is not for bargain hunters,” a source said.

Several sources were wary of another No-No, or 0% coupon convertible note that prices at par.

Several recent 0% convertible bonds are now trading at least 10 points below their issue price, a source said.

Snap Inc.’s 0% convertible notes due 2027, the most recent No-No to clear the primary market, was changing hands at 96.5 versus a stock price of $53 late Tuesday afternoon.

Beyond Meat Inc.’s 0% convertible notes due 2027 traded down to 86 versus a stock price of $106.95 on Tuesday.

While several sources were wary of the pricing terms, ON Semiconductor was using proceeds to fund the repurchase or exchange of its 1.625% convertible notes due 2023, which was helping to drive demand for the new offering.

With the global supply chain rocked by a chip shortage, the company’s growth prospects looked promising with the convertible an alternative to the company’s common stock, a source said.

The deal also offered one of the only pure semiconductor plays in the convertibles market.

LCI improves

LCI Industries priced $400 million of five-year convertible notes after the market close on Monday at par with a coupon of 1.125% and an initial conversion premium of 27.5%.

Pricing came toward the cheap end of talk for a coupon of 0.75% to 1.25% and at the cheap end of talk for an initial conversion premium of 27.5% to 32.5%, according to a market source.

The new paper was performing well on an outright and dollar-neutral basis. It traded as high as 101 as stock spiked up shortly after the opening bell.

However, the notes dropped back down to par as stock turned negative.

They returned to a 101-handle as stock again improved heading into the afternoon and were changing hands at 101.25 about one hour before the closing bell.

While the 1.125% notes were flat dollar-neutral early in the session, they expanded 0.5 point in the late afternoon, sources said.

The notes were the most actively traded of Tuesday’s session with 47 million in reported volume heading into the market close.

LCI’s stock traded to a low of $127.22 before closing the day at a high of $132.07, an increase of 1.65%.

Dynavax below par

Dynavax Technologies sold $200 million of five-year convertible notes after the market close on Monday at par with a coupon of 2.5% and an initial conversion premium of 32.5%, according to a company news release.

Pricing came at the cheap end of talk for a coupon of 2% to 2.5% and in the middle of talk for an initial conversion premium of 30% to 35%, according to a market source.

While volume in the name was light, the notes were trading firmly below par as stock continued to get crushed.

The notes traded as low as 96 on Tuesday but were changing hands at 99 in the late afternoon, a source said.

Dynavax’s stock traded to a low of $7.09 and a high of $7.73 before closing the day at $7.52, a decrease of 4.81%.

Insmed gains

Insmed priced $500 million of seven-year convertible notes after the market close on Monday at par with a coupon of 0.75% and an initial conversion premium of 30%.

Pricing came at the midpoint of talk for a coupon of 0.5% to 1% and at the rich end of talk for an initial conversion premium of 25% to 30%, according to a market source.

The new paper was volatile on its aftermarket debut.

The 0.75% notes traded as low as 98.75 early in the session before popping above par as stock improved.

The notes traded as high as 105 in intraday activity and were marked at 103.5 bid, 104.5 offered versus a stock price of $27 in the late afternoon.

While the notes were seen up 0.5 to 1 point dollar-neutral early in the session, they gave up much of their dollar-neutral gains as the session progressed.

The notes were seen contracted about 0.5 point in the late afternoon due to selling pressure from profit-taking, a source said.

The bonds were active with more than $38 million in reported volume.

Proceeds from the biopharmaceutical company’s latest offering were used to repurchase $225 million of the principal amount of the company’s 1.75% convertible notes due 2025 for $237 million plus interest in privately negotiated transactions.

The 1.75% convertible notes were also active during Tuesday’s session. The notes were changing hands at 104.125 versus an equity price of $26.91 in the late afternoon.

The 1.75% notes expanded upwards of 1.5 points dollar-neutral, a source said.

There was more than 33 million in reported volume.

While it was unclear how much of the trading activity was driven by the repurchase, the 1.75% notes “were a different bond,” given the company’s stock move.

After tanking more than 20% on Monday, Insmed’s stock traded to a low of $25.00 and a high of $27.52 before closing the day at $26.96, an increase of 3.73%.

Mentioned in this article:

Beyond Meat Inc. Nasdaq: BYND

Dynavax Technologies Corp. Nasdaq: DVAX

Insmed Inc. Nasdaq: INSM

LCI Industries NYSE: LCII

ON Semiconductor Corp. Nasdaq: ON

Snap Inc. NYSE: SNAP

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