Tilray convertibles rebound, trade above par; cannabis sector eyed; Ares Capital active

By Abigail W. Adams

Portland, Me., Oct. 15 – The convertible secondary space opened the week with decent trading volume although the new paper to price last week was not active, a market source said.

There was about $56 million on the tape early in the session and about $280 million by mid-afternoon.

Tilray Inc.’s 5% convertible notes due 2023 were the most actively traded issue of the day with the notes trading above par after dropping as low as 89 last week.

While less active, market players were eyeing Canopy Growth Corp.’s 4.25% convertible notes due 2023 as the company’s stock on the New York and Toronto exchanges soared.

The convertible notes from the cannabis sector were in focus as investors responded favorably to company news and the pending legalization of cannabis in Canada on Oct. 17.

Ares Capital Corp.’s 4.375% convertible notes due 2019 were also active during Monday’s session with the trading activity most likely driven by a seller looking to raise cash or moving on to another issue, a market source said.

Meanwhile, the new paper to hit the market last week was not active on Monday.

Verastem Inc.’s 5% convertible notes due 2048 and Karyopharm Therapeutics Inc.’s 3% convertible notes due 2025 were last seen trading up on an outright basis.

Granite Point Mortgage Trust Inc.’s 6.375% convertible notes due 2023 were largely trading around par.

Tilray rebounds

Tilray’s 5% convertible notes due 2023 were on the rebound on Monday after taking a hit in last week’s sell-off.

While slow to trade early in the session, activity surrounding the notes increased in the afternoon with the notes jumping more than 4 points outright.

The 5% notes were seen at 101 bid, 102 offered versus a stock price of $162.00, according to a market source. They were seen changing hands at 101.

More than $24 million bonds were on the tape by late afternoon.

The 5% notes closed Friday at 96 after trading as low as 89 mid-week amid the “blood-letting” in equity markets, sources said.

Tilray stock was also on the rebound on Monday, closing the day at $165.64, an increase of 11.69%.

However, the borrow remains an issue with the notes continuing to trade on an outright basis, a market source said.

While Tilray’s convertible notes were up on an outright basis, the premium on the notes was not holding. The notes priced at par with an initial conversion premium of 15%.

However, the conversion premium was 5% when the notes broke par on Monday.

“If there was a borrow, you’d be hurting,” a market source said. “But there was no borrow.”

The jump came after Tilray subsidiary High Park Holdings Ltd. unveiled its portfolio of cannabis brand products just days before the legalization of cannabis in Canada goes into full effect on Oct. 17.

While a less liquid name, market players were also eyeing Canopy Growth’s 4.25% convertible notes due 2023.

The 4.25% notes were seen at 161.5 bid mid-afternoon as the company’s equity on both the Toronto and New York stock exchange soared.

The Canadian dollar-denominated notes are tied to the company’s equity on the Toronto Stock Exchange, which closed Monday at C$73.87, an increase of 13.82%.

Canopy Growth’s equity on the New York Stock Exchange broke out to a new 52-week high on Monday closing the day at $56.89, an increase of 14.24%.

Stock rallied after Canopy Growth announced it was purchasing Colorado-based hemp research company Ebbu Inc. in a deal valued at $19.2 million.

Ares Capital active

Ares Capital’s 4.375% convertible notes due 2019 saw high volume trading early in Monday’s session but were inactive in the afternoon.

The 4.375% notes changed hands around 100.25 with $14 million bonds in play less than one hour after the opening bell.

With the short duration until maturity, the 4.375% notes trade for their yield, which was about 3.3%, a market source said.

The trading activity was most likely driven by a seller looking to raise cash or moving on to another issue, the source said.

New paper quiet

The new paper to hit the market last week was not seen trading on Monday.

Verastem’s 5% convertible notes due 2048 was a tightly allocated deal with fixed terms that was akin to a private placement, a market source said.

While there were few prints of the notes on their secondary market debut on Friday, they closed the day at 101, the source said.

Karyopharm Therapeutics’ 3% convertible notes due 2025 were also not seen on the tape on Monday although the notes put in a strong secondary market performance after pricing last Thursday.

The notes closed Friday at 102.85 with stock at $12.60.

The strong performance of the notes was attributed to their cheap pricing and the “annihilation” of the company’s equity during bookbuilding, where stock dropped more than 20%, a market source said.

Granite Point’s 6.375% convertible notes due 2023 were also not on the tape on Monday. The notes have largely traded at par since pricing last Tuesday, a source said.

Mentioned in this article:

Ares Capital Corp. Nasdaq: ARCC

Canopy Growth Corp. TSE: WEED

Granite Point Mortgage Trust Inc. NYSE: GPMT

Karyopharm Therapeutics Inc. Nasdaq: KPTI

Tilray Inc. Nasdaq: TLRY

Verastem Inc. Nasdaq: VSTM

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