IAC, Veoneer on tap; Avantor’s gains continue; Lumentum contracts; Tesla down again

By Abigail W. Adams

Portland, Me., May 20 – The week was off to another brutal start with equities again taking a hit on the latest development in hostilities between the United States and China.

Technology stocks were under pressure as companies announced they will begin to choke off Huawei’s supply chain in compliance with the Trump administration’s blacklist of the Shenzhen, China-based telecommunications company.

However, that did not stop the convertibles primary market from rolling out the new deals.

Two new deals joined the forward calendar on Monday – IAC/InterActive Corp.’s $1 billion two-tranche offering of exchangeable notes and Veoneer, Inc.’s $150 million offering of five-year convertible notes.

Meanwhile, volume remained light in the convertibles secondary space amid the sell-off in equities with a little over $300 million in reported volume shortly before the market close.

However, the convertible notes of tech players with exposure to China were contracting.

Lumentum Holdings Inc.’s 0.25% convertible notes due 2024 saw a large dollar-neutral contraction after announcing a reduction to its fourth quarter guidance due to discontinued shipments to Huawei.

ON Semiconductor Corp.’s 1% convertible notes due 2020 and Microchip Technology Inc.’s 1.625% convertible notes due 2027 were also down in active trading.

Tesla Inc.’s convertible notes continued to sink on an outright and dollar-neutral basis with stock again moving lower on Monday.

However, Avantor Inc.’s 6.25% series A convertible preferreds due 2022 remained a bright spot in the secondary space with the preferreds continuing to post gains on both an outright and dollar-neutral basis in active trading on Monday.

Forward calendar balloons

The weak tape did not prevent the primary market from rolling out two deals after the market close on Monday.

IAC/InterActive plans to price a $1 billion two-tranche convertible notes offering after the market close on Tuesday.

The offering consists of $500 million of seven-year exchangeable notes, which are talked to yield 1% to 1.5% with an initial exchange premium of 27.5% to 32.5%, according to a market source.

The notes will be issued by IAC Finance Co. 2, Inc.

The offering also consists of a $500 million tranche of exchangeable notes due 2030, which are talked to yield 1.75% to 2.25% with an initial exchange premium of 27.5% to 32.5%.

The notes will be issued by IAC Finance Co. 3, Inc.

Both tranches are convertible into IAC common shares.

J.P. Morgan Securities LLC and Goldman Sachs & Co. LLC are joint bookrunners for the Rule 144A offerings with both tranches carrying a greenshoe of $75 million.

Veoneer plans to price $150 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 3.75% to 4.25% and an initial conversion premium of 25% to 30%, according to a market source.

Morgan Stanley & Co. LLC is bookrunner for the registered offering, which carries a greenshoe of $22.5 million.

The deal is pricing concurrently with a $350 million common stock offering, which carries a greenshoe of $52.5 million.

Lumentum contracts

Lumentum’s 0.25% convertible notes due 2024 led the decline of convertible notes with exposure to China with the notes dropping on both an outright and dollar-neutral basis.

The 0.25% convertible notes were down more than 5 points outright.

They were changing hands at 105.375 in the late afternoon.

The notes were contracted up to 3.5 points dollar-neutral, a market source said.

Lumentum stock closed Monday at $44.42, a decrease of 4.1%.

The optical and photonic products manufacturer slashed its guidance for the fourth quarter after announcing it would end shipments to Huawei in compliance with the Trump administration ban.

The company announced revenue would be $375 million to $390 million versus the previously projected $405 million to $425 million.

Earnings per share for the fourth quarter were also lowered to 65 cents to 77 cents versus the previous forecast of 85 cents to $1.00, TheStreet.com reported.

Lumentum was one of several convertible notes issuers that were contracting based on the news.

Any issuer with exposure to China was moving lower on Monday, a market source said.

ON Semiconductor’s 1% convertible notes due 2020 dropped 3.375 points outright. They were seen changing hands just shy of 116 versus an equity price of $18.25 in the late afternoon.

More than $17.5 million of the bonds were on the tape during Monday’s session.

ON Semiconductor’s stock closed Monday at $18.33, a decrease of 2.34%.

Microchip’s 1.625% convertible notes due 2027 dropped about 4.5 points outright to 108.25 in the late afternoon.

More than $8 million of the bonds were on the tape by the late afternoon.

Microchip stock closed Monday at $79.54, a decrease of 4.05%.

Tesla down again

Tesla’s convertible notes continued to trend downward on Monday after another analyst expressed skepticism about the prospects of the company.

All three tranches of convertible notes were contracted about 0.5 point dollar-neutral, a market source said.

The 2% convertible notes due 2024 continued to lead trading volume with more than $20 million of the bonds on the tape by the late afternoon.

They were seen changing hands at 90 in the late afternoon.

After a large initial expansion on the secondary market debut of the 2% notes on May 3, the notes have steadily traded down with their initial gains wiped out.

Tesla’s 1.25% convertible notes due 2021 were changing hands just shy of 93 versus a stock price of $199.00.

Tesla’s 2.375% convertible notes were changing hands around 94.25.

SolarCity Corp.’s soon-to-mature 1.625% convertible notes due Nov. 1, 2019 were also trading down on Monday.

The 1.625% notes were down another 1.375 points to 96 in the late afternoon with the yield to maturity now 11.11%.

The SolarCity bonds traded as high as 98 after Tesla’s convertible notes and secondary offering on May 3.

However, they have steadily traded lower as Tesla’s stock and convertible notes have sold off.

Tesla stock dropped as low as $195.25 on Monday and closed the day at $205.36, a decrease of 2.69%.

Stock also dropped about 7% on Friday as the struggling electric car manufacturer announced a new cost-cutting program.

Stock was again under pressure on Monday after an analyst at Wedbush cut its price target for Tesla stock.

Avantor gains continue

Avantor’s 6.25% series A convertible preferreds due 2022 remained a bright spot in the secondary space with the preferreds continuing to post gains in active trading on Monday.

The 6.25% convertible preferreds traded as high as $57.55 on Monday before closing the day at $56.90, an increase of $4.15 or 7.87%.

They were up another 0.25 point dollar-neutral, a market source said.

Avantor stock closed Monday at $15.41, an increase of 6.28%.

Mentioned in this article:

Avantor Inc. NYSE: AVTR

IAC/InterActive Corp. Nasdaq: IAC

Lumentum Holdings Inc. Nasdaq: LITE

Microchip Technology Inc. Nasdaq: MCHP

ON Semiconductor Corp. Nasdaq: ON

Tesla Inc. Nasdaq: TSLA

Veoneer, Inc. NYSE: VNE

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