Convertible bond market buzzes as new Ensco, Teradyne, Zillow deals price; Aerojet on tap

By Stephanie N. Rotondo

Seattle, Dec. 7 – The convertible bond market was experiencing higher-than-usual volume in midweek trading, spurred by a flurry of new issuance.

At mid-morning, a trader said that of the $273 million in total secondary market volume, $200 million was made up of Ensco plc’s $750 million of 3% exchangeable senior notes due 2024 and Teradyne Inc.’s $400 million of 1.25% senior convertible notes due 2023.

Ensco – which was upsized from $650 million and priced with a 32.5% conversion premium – “has done very, very well considering” that the equity was trading off, the trader said.

He said the issue was trading between par and 102, “depending on the common stock, because there is a lot of leverage.”

By day’s end, the issue was trading with a 102 handle.

The stock, however, waned 66 cents, or 6.24%, to $9.92, in well above-average trading.

Teradyne was meantime pegged in a 104 to 104.5 context early in the session, as the equity was pushing higher.

“If [Ensco’s stock] had behaved like that, they would be 106 by now,” the trader said.

The paper was straddling 104 at the bell.

The shares meantime rose 55 cents, or 2.2%, to $25.52.

Teradyne came with a 27.5% conversion premium.

Also priced Wednesday was a $400 million offering of 2% convertible senior notes due 2021 from Zillow Group Inc.

The convertibles were seen at 101.75 bid, 102.25 offered at mid-morning and at 102.25 at the end of the day.

The underlying equity – the company’s class C common stock (Nasdaq: ZG) – initially traded lower but eventually closed 5 cents better at $38.12.

That deal came with a 37.5% conversion premium.

The activity in the new issues came amid “a lot of demand for new paper,” a trader remarked. “And we will continue to see that.”

The trader also pointed out that “these are real companies, the kind you want to see – not just these oil and gas guys.”

Issuance in the convertible bond market has been sparse for the last several years, the trader noted, so Wednesday’s hubbub was “certainly a nice start.”

Still, “it’s going to take quite a bit of issuance” for the past years of lost deals, he said.

Aerojet deal emerges

But the deal flow for the week didn’t stop there. Aerojet Rocketdyne Holdings Inc. said it planned to raise $200 million via an offering of convertible senior notes due 2023.

Price talk is for a yield of 1.875% to 2.375% and an initial conversion premium of 27.5% to 32.5%.

BofA Merrill Lynch and Jefferies are the joint bookrunners.

Prior to Sept. 15, 2023, the notes are convertible at the holder’s option only in certain circumstances. After that date, the notes are convertible at any time.

There is a contingent conversion trigger if the stock hits 130% of the conversion price.

Conversions will be settled by cash, common stock or a combination thereof.

The notes become redeemable on or after Dec. 21, 2020 under certain circumstances – including a 150% price hurdle – at par plus accrued interest.

Proceeds will be used to repay a revolving credit facility, to redeem certain outstanding debt and for general corporate purposes.

Illumina hires new CFO

Aside from new issues, Illumina Inc.’s convertibles were active – but barely changed – in the wake of news the company had hired a new chief financial officer.

The 0% convertible notes due 2019 were seen around 96, which was down a shade from previous levels. The 0.5% convertible notes due 2021 were meantime unchanged at 96.875.

The common stock took a bit of a hit on the news, falling $4.39, or 3.47%, to $122.01.

Sam A Samad is the new CFO and will start Jan. 6.

The naming of the CFO is part of the DNA sequencing company’s effort to change up its leadership team. Illumina still has at least four positions to fill.

In a report issued on Wednesday, Cowen & Co.’s Doug Schenkel said that the hiring “can help boost confidence in company leadership in the midst of what has been a challenging period for Illumina.”

Schenkel also noted that Illumina has hired a head of clinical genomics, though that has not been formally announced.

Mentioned in this article:

Aerojet Rocketdyne Holdings Inc. NYSE: AJRD

Ensco plc NYSE: ESV

Illumina Inc. Nasdaq: ILMN

Teradyne Inc. NYSE: TER

Zillow Group Inc. Nasdaq: ZG

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