Convertibles move sideways in quiet trade; new II-VI surges in first-day trading

By Rebecca Melvin

New York, Aug. 24 – Convertibles moved sideways in quiet trade on Thursday, with the exception of a new issue from Pittsburgh-based manufacturer II-VI Co., which zoomed up about 4 points on a dollar-neutral, or swap, basis after the company priced $300 million of the 0.25% five-year notes.

The new II-VI convertibles were 104.75 bid, 105.50 offered after release for secondary trading action on Thursday, with the stock at $35.75. At late morning, the new paper accounted for about half the day’s volume.

“This thing is definitely an outperformer,” a market source said.

Tesla Inc.’s 2.375% convertible notes due 2022 were trading actively but little changed at around 125.6 with shares of the Palo Alto, Calif.-based automaker up 0.05% at $352.93.

American Realty Capital Properties Inc.’s 3% convertibles due 2018 also traded fairly actively but remained little changed at 100.875 at the close. It had traded nearly a point lower intraday at 99.95 and 99.65, but moved back up to the even mark, according to Trace data.

Elsewhere, trading was quiet, with many issues moving a little weaker intraday amid a lack of catalysts and low volumes, but ending at around unchanged mark.

Jazz Pharmaceuticals plc’s 1.5% exchangeable senior notes due 2024, of which $500 million priced earlier this month at 97, were not heard in trade. But the older Jazz 1.875% convertibles due 2021 traded at 106, which was up a couple of points from 104 which is where they stood when the new deal was priced.

U.S. stocks slipped as market players turned their attention to hints about monetary policy that may be forthcoming at the annual meeting of central bankers and others in Wyoming.

Both European Central Bank president Mario Draghi and U.S. Federal Reserve chairwoman Janet Yellen were slated to deliver remarks at the Jackson Hole symposium on Friday.

Investors will be watching to see if comments point to policy adjustments. For example, whether Draghi intimates that he is concerned about the strength of the euro currency which starts 12% higher against the U.S. dollar so far this year.

The Dow Jones industrial average ended Thursday down 28.69 points, or 0.1%, to 21,783.40; the S&P 500 stock index shed 5.07 points, or 0.2%, to 2,438.98; and the Nasdaq lost 7.08 points, or 0.1%, to 6,271.33.

Bonds edged lower as well, leaving the yield on the 10-year Treasury note at 2.187%, which was up from 2.171% on Wednesday.

II VI zooms up

II VI’s newly priced 0.25% bonds due 2022 were higher by about 4 points on swap and 104.75 bid, 105.5 offered on an outright basis. Shares closed up a dime of 0.3% at $35.35 after having been up 50 cents at $35.75 when the bonds were topping out around 105.

The bonds were going to be trading on a delta of 60% to 65%.

The new $300 million issue was an outperformer in the convert space on Thursday, a market source said.

BofA Merrill Lynch was bookrunner of the Rule 144A offering of convertible senior notes.

The Pittsburgh-based producer of engineered materials and optoelectronic components and devices plans to use $50 million of the proceeds to repurchase stock from one or more of the initial purchasers of the notes via privately negotiated transactions. Remaining proceeds will be used for general corporate purposes.

Mentioned in this article:

American Realty Capital Properties Inc. Nasdaq: ARCP

II-VI Co. Nasdaq: IIVI

Jazz Pharmaceuticals plc Nasdaqa: JAZZ

Tesla Inc. Nasdaq: TSLA

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