Lumentum’s new convertibles jump outright, improve on hedge; Nio gains; Illumina active

By Abigail W. Adams

Portland, Me., June 20 – It was a slow return from the long weekend for the convertibles primary and secondary markets with no new deals launching and trading activity light.

There are only a handful of available days left in the second quarter to launch deals, a source said, with many wondering if any of the backlogged deals in the pipeline will press go before earnings season blackouts go into effect.

Meanwhile, it was a down day for equity markets with indexes in the red although they closed well off the lows of the day.

The Dow Jones industrial average closed Tuesday down 245 points, or 0.72%, the S&P 500 index down 0.47%, the Nasdaq Composite index down 0.16% and the Russell 2000 index down 0.47%.

There was $54 million in reported convertible bond trading volume about one hour into the session and $383 million about one hour before the market close.

While it was a down day for equities, Lumentum Holdings Inc. saw a head-scratching stock surge, which lifted its 1.5% convertible notes due 2029 on an outright and dollar-neutral basis as stock soared early in the session.

Nio Inc.’s convertible notes made large gains following news an Abu Dhabi investment fund had taken a sizable stake in the company.

Lucid Group Inc.’s 1.25% convertible notes due 2026 also improved in active trade with the notes continuing to ride the upward momentum sparked by a follow-on offering.

Illumina Inc.’s soon-to-mature 0% convertible notes due Aug. 18, 2023 (BBB) saw heavy volume with the notes trading up to a 99-handle as their end-of-life approaches.

Lumentum’s surge

Lumentum’s 1.5% convertible notes due 2029 made large outright gains and continued to improve dollar-neutral as stock surged for no reason in particular.

The 1.5% notes were up more than 6 points outright as stock rose more than 8% in early trading.

The notes were changing hands at 111 versus a stock price of $62.96 early in the session.

They came in alongside stock as the session progressed and were changing hands at 109.5 versus a stock price of $62.46 in the late afternoon.

The notes added another 0.25 point dollar-neutral, a source said.

There was $10.5 million in reported volume.

Lumentum’s stock traded to a low of $59.94 and a high of $65.16 before closing at $61.37, an increase of 6.18%.

The sudden rise in stock was a headscratcher for many with no apparent reason for the move.

However, the designer and manufacturer of optical and photonic products may be caught up in the AI investor craze that has helped fuel the Nasdaq’s rally.

Lumentum’s 1.5% convertible notes were the last deal to clear the primary market.

While they have made strong outright gains since hitting the secondary space, the notes only recently started to expand on hedge.

EV investments

Nio’s convertible notes made large gains on Tuesday with the Shanghai-based EV maker the latest in the sector to attract investment from a Middle Eastern nation.

Nio’s 0% convertible notes due 2026 rose to 95.5 with the yield 7.714%.

There was $8.5 million in reported volume.

The notes become putable on Feb. 1, 2024.

Nio’s 0.5% convertible notes due 2027 traded up to 83 with the yield about 12.5%.

The notes become putable on Feb. 1, 2025.

There was $6 million in reported volume.

Both tranches made large dollar-neutral gains, a source said.

Nio’s American Depositary Shares traded to a low of $9.06 and a high of $9.41 before closing at $9.35, a decrease of 0.53%.

The convertible notes were on the rise following news that an entity controlled by the Abu Dhabi Government, CYVN Holdings LLC, will purchase $738.5 million in newly issued shares.

In addition, CYVN Holdings will purchase approximately 40 million Nio shares from shareholder Tencent, which will boost CYVN’s ownership interest to 7%, according to a company news release.

The investment is the latest from a Middle Eastern nation in the EV sector.

Lucid’s 1.25% convertible notes due 2026 continued to add in active trade on Tuesday.

The 1.25% notes were nominally improved outright.

They traded up to 61.625 in the late afternoon with the yield now 16%.

There was $13 million in reported volume.

Lucid’s stock traded to a low of $6.26 and a high of $6.58 before closing at $6.32, a decrease of 2.47%.

Lucid’s 1.25% convertible notes have made strong gains since early June when it announced a follow-on offering of 173,544,348 common shares, in addition to a private placement of 265,693,703 shares with Saudi Arabia’s Public Investment Fund affiliate Ayar Third Investment Corp.

Saudi Arabia’s Public Investment Fund owns approximately 60.5% of Lucid.

Illumina active

Illumina’s 0% convertible notes due Aug. 15, 2023 continued to rise in active trade as their maturity approaches.

The notes traded up to a 99-handle.

They were trading at 99.125 with the yield just north of 6% in the late afternoon.

There was $13 million in reported volume.

The notes have been active as their maturity approaches with the notes switching hands in end-of-life trades.

Mentioned in this article:

Lucid Group Inc. Nasdaq: LCID

Lumentum Holdings Inc. Nasdaq: LITE

Illumina Inc. Nasdaq: ILMN

Nio Inc. NYSE: NIO

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