ConMed convertibles expand on debut; Western Digital rallies; Illumina notes contract

By Abigail W. Adams

Portland, Me., Jan. 25 – The convertible secondary space was active on Friday with new paper from ConMed Corp. jumpstarting trading activity.

Despite pricing richer than initial talk, ConMed’s new convertible notes were expanding in high-volume activity.

Outside of the new paper, Western Digital Corp.’s 1.5% convertible notes due 2024 were again major volume movers in the secondary space.

The notes were improved on both an outright and dollar-neutral basis as stock surged following the data storage company’s second-quarter earnings report.

Illumina Inc.’s 0.5% convertible notes due 2021 and 0% convertible notes due 2023 were also active in the secondary space with the 0% convertible notes contracting as stock sank after a downgrade.

ConMed in demand

ConMed priced an upsized $300 million of five-year convertible notes after the market close on Thursday at the rich end of talk at par with a coupon of 2.625% and an initial conversion premium of 27.5%.

Price talk was tightened during bookbuilding to a coupon of 2.625% to 2.875% and an initial conversion premium of 27.5%, according to a market source.

Initial price talk was for a coupon of 2.875% to 3.375% and an initial conversion premium of 22.5% to 27.5%, according to a market source.

The greenshoe was also upsized to $45 million.

The initial size of the deal was $275 million with a greenshoe of $41.25 million.

The new paper dominated activity in the secondary space and was expanding on debut, despite pricing through the initial price talk, a market source said.

ConMed’s 2.625% convertible notes were trading between 101.5 and 102 throughout Friday’s session with stock largely flat, sources said.

It was expanded about 1.75 points dollar-neutral, according to a market source. More than $103 million of the bonds had changed hands by the late afternoon.

ConMed stock closed Friday at $69.89, an increase of 0.34%.

The shortage of new paper was helping to boost the 2.625% convertible notes, a market source said.

While sources pointed to ConMed’s positive cash flow and solid EBITDA to highlight the attractiveness of the deal, the capital raise has increased the leverage of the company, a source said.

In addition to the convertible notes offering, ConMed expanded its credit facility to fund the $365 million acquisition of Buffalo Filter LLC.

Western Digital expands

Western Digital’s 1.5% convertible notes due 2024 were again active in the secondary space with the notes lifted as stock surged on Friday, despite an earnings miss.

The 1.5% convertible notes traded just shy of 86 in high-volume activity early Friday.

They were seen changing hands at 85.5 versus an equity price of $42.67 later in the afternoon, a market source said.

While the notes initially contracted as stock jumped early in Friday’s session, the notes were expanded about 0.5 point in the mid-afternoon, a market source said.

More than $22 million of the bonds were in play during Friday’s session.

Western Digital stock traded as high as $47.95 early Friday but closed the day at $43.14, an increase of 7.47%.

Stock surged despite a second-quarter earnings miss on both the top and bottom lines.

Western Digital reported non-GAAP earnings per share of $1.45, which fell short of analyst expectations for earnings per share of $1.49.

Revenue also missed with a reported $4.23 billion in the second quarter versus analyst expectations for revenue of $4.25 billion.

However, the jump was due to the company’s expectations of increased revenue in the second half of the year. The fundamentals of the company were looking stronger, a market source said.

Illumina contracts

Illumina’s 0.5% convertible notes due 2021 and 0% convertible notes due 2023 were again active in the secondary space with the 0% convertible notes contracting as stock sank following an analyst downgrade.

The 0.5% convertible notes dropped about 1.5 points outright.

They were seen trading at 131.3 versus an equity price of $307.34, according to a market source. More than $15.5 million of the bonds changed hands during Friday’s session.

Illumina’s 0% convertible notes due 2023 were contracted 0.5 point dollar-neutral, a market source said.

The notes were changing hands around 102.875 with more than $5 million of the bonds changing hands during Friday’s session.

Illumina stock closed Friday at $294.18, a decrease of 2.29%. Illumina stock was trading down following a downgrade from analysts at Deutsche Bank.

Illumina stock was downgraded to “hold” from “buy.”

Mentioned in this article:

ConMed Corp. Nasdaq: CNMD

Illumina Inc. Nasdaq: ILMN

Western Digital Corp. Nasdaq: WDC

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