Semiconductor convertibles eyed; Zendesk, Microchip active on earnings; OPKO improves

By Abigail W. Adams

Portland, Me., Feb. 6 – Trading activity in the convertibles market on Wednesday belonged to semiconductor and tech names with earnings beats pushing names into the spotlight.

Zendesk Inc.’s 0.25% convertible notes due 2023 were in focus with the notes making large outright gains on an outright basis but contracting dollar-neutral as stock soared.

Microchip Technology Inc.’s convertible notes also saw high-volume activity after an earnings beat with the notes unchanged to lagging slightly as stock improved.

Micron Technology Inc.’s 3% convertible notes due 2043 saw another round of active trading as stock jumped higher in sympathy with the rest of the semiconductor sector.

The recent call of the notes was described as “surprising” and “disappointing” by market sources.

Outside of the tech sector, OPKO Health Inc.’s 4.5% convertible notes due 2026 continued to improve on Wednesday while trading activity tempered their second day in the market.

Zendesk contracts

Zendesk’s 0.25% convertible notes due 2023 were in focus on Wednesday with the notes making large outright gains alongside stock after an earnings beat.

However, the 0.25% notes were contracting on the move.

The 0.25% convertible notes rose 8.5 points outright to 135 early in the session but came in as the session progressed to close the day at 130.25.

They were contracted 0.5 point to 0.75 point on a dollar-neutral, or hedged, basis on the move up, a market source said early in the session.

Zendesk stock traded as high as $78.85 during Wednesday’s session but closed the day at 130.25.

Outright accounts tend to sell when convertible notes hit the 135 range, a market source said, with the selling activity pushing the notes down on a dollar-neutral basis.

Zendesk stock was on the rise after the software company reported a large fourth-quarter earnings beat on both the top and bottom lines.

Zendesk reported earnings per share of 10 cents versus analyst expectations for earnings per share of 3 cents.

Zendesk reported revenue of $172.25 million versus analyst expectations of revenue of $165.6 million.

Microchip reports earnings

Microchip’s 1.625% convertible notes due 2025 and 1.625% convertible notes due 2027 also posted gains on an outright basis as stock soared following an earnings beat.

However, the notes were unchanged to down slightly on a dollar-neutral basis, according to a market source.

The 1.625% convertible notes due 2025 jumped about 11 points outright to close Wednesday at 175.44, according to a market source.

The 1.625% convertible notes due 2027 jumped more than 7 points to close Wednesday at 119.19.

Microchip stock traded as high as $91.75 during Wednesday’s session but closed the day at $89.31, an increase of 7.29%.

The notes were unchanged to down slightly on a dollar-neutral basis, a market source said.

Microchip beat on both the top and bottom lines in its third-quarter earnings report.

Microchip reported earnings per share of $1.66 versus analyst expectations for earnings of $1.58.

Revenue was $1.42 billion versus analyst expectations of $1.41 billion.

Micron active

Micron’s 3% convertible notes due 2043 also saw large gains on an outright basis as stock soared on a strong day for the semiconductor company.

However, the notes also saw little movement on a dollar-neutral basis.

The 3% convertible notes rose almost 8 points outright to close the day at 142.39, according to a market source.

Micron stock closed the day at $41.52, an increase of 5.46%.

The notes have been largely flat dollar-neutral since an initial contraction after the chipmaker announced it would call the notes on Monday.

The call news was “surprising,” and “disappointing,” a market source said. Many did not think the notes would be called.

The 3% notes were very hedge centric and were investment grade, which is in high demand in the convertibles universe, sources said.

While the $1.02 billion is a sizable amount of paper that will be leaving the space, the void it is leaving is expected to be filled by new issuance, sources said.

OPKO improves

While trading volume tempered on Wednesday, OPKO Health’s 4.5% convertible notes due 2026 continued to improve during Wednesday’s session.

The 4.5% convertible notes were trading between 102.5 and 103 with stock at $2.95 early in Wednesday’s session, a source said.

The notes were not active in the afternoon.

OPKO Health stock closed Wednesday at $2.86, a decrease of 3.7%.

Despite a more than 15% drop in stock on Tuesday, the 4.5% notes were largely wrapped around par on their market debut.

While the notes saw a dollar-neutral expansion of upwards of 13 points based off of Monday’s $3.52 closing price of stock, the decrease in stock was priced into the notes, sources said.

Using a stock price of $2.90 to equate to par for the 4.5% notes, the notes have expanded about 2.5 points on a dollar-neutral basis since they hit the secondary space, a market source said.

Mentioned in this article:

OPKO Health Inc. Nasdaq: OPK

Microchip Technology Inc. Nasdaq: MCHP

Micron Technology Inc. Nasdaq: MU

Zendesk Inc. NYSE: ZEN

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