Morning Commentary: Primary market opens with Lumentum convertible notes offering

By Abigail W. Adams

Portland, Me., Dec. 9 – The convertibles primary market launched one of the final weeks for new deal activity with a large offering.

Lumentum Holdings Inc. plans to price $850 million convertible notes due 2026 after the market close on Monday with price talk for a coupon of 0.25% to 0.75% and an initial conversion premium of 40% to 45%, according to a market source.

The deal was heard to be in the market with assumptions of 275 basis points over Libor and a 42% vol., according to a market source.

Using those assumptions, the deal modeled about 0.5 point cheap at the midpoint of talk, the source said.

Lumentum is a repeat issuer of convertible notes. However, proceeds will not be used to refinance the 0.25% convertible notes due 2024.

Approximately $200 million of the proceeds will be used for a stock buyback, $196 million will be used to repay a term loan, with the remaining amount to be used for general corporate purposes.

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