Lumentum convertibles eyed, outstanding issues contract; Innoviva volatile on debut

By Abigail W. Adams

Portland, Me., March 3 – New paper was in focus on Thursday as the convertibles primary market prepped a new offering and the first new deal of the week debuted in the secondary space.

Lumentum Holdings Inc. plans to price $750 million of convertible notes due June 15, 2028 after the market close on Thursday.

The deal looked cheap based on underwriters’ assumptions and provided an attractive alternative to the company’s outstanding convertible notes, sources said.

Lumentum’s 0.5% convertible notes due 2026 and 0.25% convertible notes due 2024 were taking a hit on the new offering with both issues contracting dollar-neutral during Thursday’s session.

Meanwhile, new paper from Innoviva Inc. made its aftermarket debut as selling pressure returned to equities.

The new paper was volatile on an outright basis and whipsawed between large outright gains and losses.

While the notes closed the day well below par, they expanded dollar-neutral.

Equity markets again turned negative on Thursday as the market digested Federal Reserve chairman Jerome Powell’s congressional testimony, surging energy futures and the latest developments in Russia’s invasion of Ukraine.

The Dow Jones industrial average closed the day down 97 points, or 0.29%, the S&P 500 index closed down 0.53%, the Nasdaq Composite closed down 1.56% and the Russell 2000 index closed down 1.29%.

“Everyone’s getting whipsawed by the headlines,” a source said.

While equity markets closed the day deep in the red, Peabody Energy Corp.’s stock continued to soar with the coal producer back in vogue amid soaring oil and natural gas futures.

The company’s 3.25% convertible notes due 2028 continued their meteoric rise on an outright basis although they were largely moving in line dollar-neutral.

Lumentum on tap

Lumentum plans to price $750 million of convertible notes due June 15, 2028 with price talk for a coupon of 0.375% to 0.875% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of 275 basis points over Libor and a 35% vol., according to a market source.

Using those assumptions, the deal looked 1.5 points cheap at the midpoint of talk, sources said.

The offering was coming as a “happy meal” with the company using proceeds to repurchase $250 million of its common stock in privately negotiated transactions.

The deal provided a good alternative to the company’s 0.5% convertible notes due 2026 and 0.25% convertible notes due 2024, a source said.

The San Jose, Calif.-based designer and manufacturer of optical and photonic products outstanding issues were coming in on the heels of the new offering.

The 0.25% convertible notes were changing hands at 171.5 versus a stock price of $102.11 early in the session.

They fell to 167.5 as stock dropped heading into the afternoon.

The 0.5% convertible notes were changing hands at 120 versus a stock price of $101.03 early in the session.

They fell to 118 in the late afternoon.

Both issues contracted about 1 point dollar-neutral, a source said.

Lumentum’s stock traded to a high of $105.05 and a low of $98.38 before closing the day at $98.89, a decrease of 2.36%.

Innoviva active

Innoviva priced an upsized $225 million of six-year convertible notes after the market close on Wednesday at par at the rich end of talk with a coupon of 2.125% and an initial conversion premium of 35%.

Price talk was for a coupon of 2.125% to 2.625% and an initial conversion premium of 30% to 35%.

The greenshoe was also upsized to $45 million.

The initial size of the offering was $200 million with a greenshoe of $40 million.

The new paper was volatile on debut and traded to a high of 102.25 and a low of 97.75 about one hour into the session, a source said.

It continued to drop as the session progressed and was seen changing hands at 96.75 in the late afternoon.

While the notes tanked outright, they expanded 0.25 to 0.5 point on the move down, a source said.

Innoviva’s stock traded to a high of $19.35 and a low of $17.43 before closing the day at $17.90, a decrease of 7.83%.

Peabody soars

The meteoric rise of Peabody Energy’s 3.25% convertible notes due 2028 continued on Thursday.

The notes gained another 10 points outright with stock up another 10%.

They were changing hands at 139 in the late afternoon.

Peabody’s stock traded to a low of $19.96 and a high of $24.03 before closing the day at $22.96, an increase of 10.33%.

The coal producer’s stock has soared amid surging crude oil futures with coal once again looking attractive as a cheap energy source.

The company’s recent foray into renewables has also helped the bullish momentum of its stock.

Stock rose almost 11% on Wednesday after the company announced a joint venture to develop solar energy on its former coal mine sites in Indiana and Illinois.

The 3.25% notes priced at par on Feb. 24.

Mentioned in this article:

Innoviva Inc. Nasdaq: INVA

Lumentum Holdings Inc. Nasdaq: LITE

Peabody Energy Corp. NYSE: BTU

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.