Lumentum convertible notes trade higher outright, flat on swap; Ventas notes weaken

By Abigail W. Adams

Portland, Me., June 14 – While broader markets were firmly focused on the Fed on Wednesday, one name occupied the attention of the convertibles secondary space.

Lumentum Holdings Inc. was the name of the day on Wednesday as its latest offering made its aftermarket debut.

The notes hit the secondary space with markets volatile surrounding the Federal Open Market Committee’s afternoon announcement.

While equities and Treasuries were lifted into the close, the Fed decision was met with a bout of selling as it struck a much more hawkish tone than anticipated.

While the Fed met expectations with the first pause in hikes since it launched its rate hike campaign in February 2022, it penciled in two additional data-dependent rate hikes in coming months.

The Dow Jones industrial average closed Wednesday down 233 points, or 0.68%, the S&P 500 index closed up 0.08%, the Nasdaq Composite index closed up 0.39% and the Russell 2000 index closed down 1.17%.

Short-dated Treasury yields jumped following the announcement as the market priced in a higher target rate than previously anticipated; however, they ended the day largely unchanged.

There was $801 million in reported volume about one hour before the market close with Lumentum’s new notes and outstanding issues accounting for more than one-quarter of the total volume in the space.

While Lumentum’s new notes made strong outright gains, the notes fell flat dollar-neutral.

Investment-grade issues were also active with the notes weaker on the heels of the Fed announcement.

Ventas Realty, LP’s 3.75% exchangeable notes due 2026 (Baa1/BBB+) gave back its outright and dollar-neutral gains with the notes falling back to par and contracting dollar-neutral.

Lumentum dominates

Lumentum was the name of the day on Wednesday as its latest offering hit the secondary space.

Lumentum priced an upsized $525 million of long six-year convertible notes after the market close on Tuesday at par at the midpoint of talk with a coupon of 1.5% and an initial conversion premium of 30%.

Price talk was for a coupon of 1.25% to 1.75% and an initial conversion premium of 27.5% to 32.5%.

The greenshoe was also upsized to $78.75 million.

The initial size of the offering was $500 million with a greenshoe of $75 million.

The new 1.5% convertible notes made strong outright gains.

They traded up to 102.625 early in the session and were changing hands at 103.625 versus a stock price of $56.35 in the late afternoon.

While up outright, the notes were straddling par on a dollar-neutral basis, a source said.

Lumentum’s outstanding issues were also active on the heels of the refinancing deal with its 2026 and 2028 notes active although with little movement in price.

Lumentum’s 0.5% convertible notes due 2028 were trading at 78.25 versus a stock price of $56.87 in the late afternoon.

There was $12 million in reported volume.

Lumentum’s 0.5% convertible notes due 2026 were trading at 88.625.

Lumentum’s stock traded to a high of $57.94 and a low of $53.75 before closing at $56.43, an increase of 5.5%.

The deal came as a refinancing with $132.8 million of net proceeds to be used to repurchase $125 million in principal of its 0.25% convertible notes due 2024 and $125 million to be used for the purchase of common stock in privately negotiated transactions.

The buyback price for Lumentum’s 0.25% convertible notes was 106.179, about 1.75 points above Tuesday’s closing price of 104.375, according to a market source.

The 0.25% notes traded at 103.5 on Monday, prior to the deal’s announcement.

Ventas down

Ventas’ recently priced 3.75% exchangeable notes gave back all gains since pricing with the notes lower on an outright and dollar-neutral basis.

The notes dropped 1.375 points outright with stock up about $1.

They were changing hands at par versus a stock price of $46.03 in the late afternoon.

There was $31 million in reported volume.

Ventas’ stock traded to a low of $45.95 and a high of $46.75 before closing at $46.32, up 0.89%.

Ventas priced $750 million of the 3.75% notes at par on June 8 with the $112.5 million greenshoe recently exercised in full.

Mentioned in this article:

Lumentum Holdings Inc. Nasdaq: LITE

Ventas Realty, LP NYSE: VTR

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