MercadoLibre, Cree on tap; new Illumina convertibles expand; Ares Capital notes active

By Abigail W. Adams

Portland, Me., Aug. 20 – While the summer doldrums take hold in other areas of global capital markets, the primary market in the convertibles space remained active with two large deals in the works.

MercadoLibre Inc. plans to price $800 million of 10-year convertible notes after the market close on Tuesday with price talk for a coupon of 1.5% to 2% and an initial conversion premium of 35% to 40%, according to a market source.

J.P. Morgan Securities LLC and Goldman Sachs & Co. are the joint bookrunners for the Rule 144A deal, which carries a greenshoe of $120 million.

Proceeds will be used to repurchase, exchange or otherwise retire the Buenos Aires-based e-commerce company’s 2.25% convertible notes due 2019.

Cree Inc. plans to price $500 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.375% to 0.875% and an initial conversion premium of 30% to 35%, according to a market source.

BofA Merrill Lynch, Wells Fargo Securities LLC, BMO Capital Markets Corp., Citigroup Global Markets Inc. and SunTrust Robinson Humphrey Inc. are the joint bookrunners for the Rule 144A deal, which carries a greenshoe of $75 million.

Cree is a first-time issuer of convertible notes.

Meanwhile, it was a quiet summer Monday in the secondary space, sources said.

However, Illumina Inc.’s newly priced 0% convertible notes due 2023 remained active on the tape with the notes continuing to improve on both an outright and dollar-neutral basis.

With several holders switching to the new notes, Illumina’s existing 0.5% convertible notes were under pressure, sources said.

Outside of recent deals, Ares Capital Corp.’s 4.375% convertible notes due 2019 were also volume leaders on Monday and were up slightly on an outright basis.

Canopy Growth Corp.’s 4.25% convertible notes due 2023 continued to climb on an outright basis on Monday after a meteoric rise last week.

Tesla Inc.’s convertible notes continued to drop on an outright basis on Monday with the A and B tranches seeing a modest dollar-neutral expansion.

The electric car maker remained in the headlines with the privatization saga taking another twist and analysts lowering their price target for company stock.

Illumina expands

Illumina’s 0% convertible notes due 2023 remained in focus during Monday’s session and continued to improve on an outright and dollar-neutral basis.

The new 0% notes were quoted at 102.5 bid, 103 offered on Monday and were seen changing hands at 102.9, sources said.

They were expanded another 0.5 point on a dollar-neutral basis after about a 2-point expansion on their market debut on Friday, a market source said.

The notes were trading on a 50% delta.

Illumina priced $650 million of five-year notes with a coupon of 0% and an initial conversion premium of 40% after the market close on Aug. 16.

Pricing matched talk for a coupon of 0% and came at the midpoint of talk for an initial conversion premium of 37.5% to 42.5%.

“Not too many guys can do that,” a market source said of the pricing, “but these guys can.” Illumina is a quality company and a solid credit, the source said.

As the new 0% convertible notes continued to gain steam on Monday, Illumina’s 0.5% convertible notes due 2021 continued to come in with holders switching to the new issue, a market source said.

The 0.5% notes also continued to see high-volume trading on Monday. They were changing hands between 136 and 137, according to Trace data.

The notes, which trade at a premium to parity, were in more than 1 point, a market source said.

The new issue “put some pressure on them,” another source said.

Illumina stock closed Monday at $325.99, an increase of 11 cents or 0.03%.

Ares active

Ares Capital’s 4.375% convertible notes due 2019 saw some action on Monday with about $18 million of the bonds changing hands.

The notes were seen trading between 100.25 and 100.375 with stock largely flat. Ares Capital stock closed Monday at $17.31, a decrease of 4 cents, or 0.23%.

Canopy climbs

Canopy Growth’s 4.25% convertible notes due 2023 continued to climb on an outright basis on Monday after a meteoric rise last week.

The 4.25% notes were up another 4 to 5 points outright on Monday although they were largely moving in line dollar-neutral, a market source said.

They were seen at 114.75 bid, 115 offered on Monday as the medical and recreational cannabis company’s stock continued to climb.

Canopy Growth’s stock closed Monday at C$49.02, an increase of 10.96%.

While the notes were largely “nuking” alongside stock on Monday, they expanded about 3 points last week, a market source said.

Canopy Growth’s convertible notes and stock jumped last week after Constellation Brands, Inc. announced a C$5 billion investment in the company.

The investment “really establishes a firm bond floor,” a market source said.

With Constellation Brands a $39 billion market cap company, the investment is giving Canopy a solid credit backstop, the source said.

Canopy’s 4.25% convertible notes jumped more than 13 points outright to 108 from about 95 as stock jumped more than 30% on Aug. 15 after the investment was announced. The notes have continued to climb since.

Tesla’s latest twist

Tesla’s convertible notes continued to drop on an outright basis on Monday as analysts slash their price target for the electric car manufacturer’s stock.

The company’s 0.25% convertible notes due 2019 were seen at 101 bid, 101.5 offered versus a stock price of $300, a market source said.

The 1.25% convertible notes due 2021 were seen at 102.25 bid, 102.75 offered.

The 2.375% convertible notes due 2022 were seen at 109 bid, 109.5 offered.

The 0.25% and 1.25% convertible notes were expanded about 0.5 point dollar-neutral, while the 2.375% convertible notes were largely unchanged.

Tesla stock was down for much of Monday’s session and traded to a low of $288.20. However, it rallied just a few minutes before the closing bell to end the day at $307.60, an increase of 0.69%.

J.P. Morgan slashed its price target for Tesla stock to $195 from $308, its previous price target before CEO Elon Musk’s now infamous “funding secured” tweet.

News broke over the weekend that Saudi Arabia’s sovereign wealth fund is in talks with Tesla competitor Lucid Motors Inc. for a potential $1 billion investment.

Musk previously stated the sovereign wealth fund was the source of his confidence that funding had been secured to take Tesla private.

Mentioned in this article:

Ares Capital Corp. Nasdaq: ARCC

Canopy Growth Corp. TSE: WEED

Cree Inc. Nasdaq: CREE

Illumina Inc. Nasdaq: ILMN

MercadoLibre Inc. Nasdaq: MELI

Tesla Inc. Nasdaq: TSLA

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