Guess? on tap; Convertibles trading volume light; Aqua America units in focus, improve

By Abigail W. Adams

Portland, Me., April 22 – Despite entering into the heart of earnings season, the convertibles primary market remained active on Monday with one deal in the works.

Guess? Inc. plans to price $250 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 2% to 2.5% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

BofA Merrill Lynch is bookrunner for the Rule 144A offering, which carries a greenshoe of $37.5 million.

Meanwhile, the convertible secondary space was off to a sluggish start on Monday with $16 million bonds on the tape a little over one hour into Monday’s session and $191 million on the tape by the late afternoon.

The secondary space was quiet with markets down ahead of an active week for earnings, sources said.

While bonds were slow to trade, Aqua America Inc.’s 6% tangible equity units due 2021 remained in focus with the units continuing to see slight improvement.

Aphria Inc.’s 5.25% convertible notes due 2024 continued to struggle with the notes languishing well below par.

Illumina Inc.’s 0% convertible notes due June 15 were major volume movers in the secondary space although the notes continued to trade at parity.

Atlassian Inc.’s 0.625% convertible notes due 2023 were active early in the session although the notes were largely unchanged.

Aqua America improves

Aqua America’s 6% tangible equity units due 2021 were again the focus of the secondary space on Monday with the units improving slightly on an outright and dollar-neutral basis.

The $50-par equity units were making minor gains alongside stock early in the session. They were changing hands around $52.30 early in the session.

They traded up to $52.50 in the late afternoon and were improved about 0.125 point on a dollar-neutral, or hedged, basis, a market source said.

Aqua America stock closed Monday at $37.54, an increase of 1.05%.

More than 1.5 million units were in play during Monday’s session.

Aqua America priced a downsized $600 million, or 12 million units, of the 6% units after the market close on Wednesday.

Nearly the entire issue size was in play during Thursday’s session with the units expanding 0.25 point dollar-neutral on debut, sources said.

Some sources noted that while the issue size was downsized, the units priced at the rich end of price talk for a dividend of 6% to 6.5% and a threshold appreciation price of 17.5% to 22.5%.

However, while the units were downsized, the concurrent equity offering, which priced at $34.62, was upsized.

The move made sense given the lower dividend on the common stock, a market source said.

Aphria struggles continue

Aphria’s 5.25% convertible notes due 2024 continued to struggle in the secondary space on Monday after a lackluster secondary market debut on Thursday.

The 5.25% convertible notes were changing hands around 97.875 Monday afternoon, according to a market source.

With no borrow on the stock, the notes were primarily outright trades, a market source said.

The Leamington, Ont.-based global cannabis company’s stock closed Monday at $7.86, an increase of 2.75%.

Aphria is the latest in a series of companies from the cannabis sector to price a dollar-denominated convertible notes offering.

The company priced $300 million of the 5.25% convertible notes after the market close on Wednesday at the cheap end of talk.

The notes struggled out of the gate and were changing hands in the low 97 range by mid-afternoon Thursday, sources said.

Illumina active

Illumina’s 0% convertible notes due June 15, 2019 were again major volume movers in the secondary space on Monday.

However, the trading activity was largely uneventful with the notes continuing to trade around parity. The 0% notes were changing hands just north of 124.75 by the late afternoon.

Illumina’s 0.5% convertible notes due 2021 also saw some high-volume trading with the notes changing hands around 138.625.

The notes were active in the run up to Illumina’s earnings report, which will be released after the market close on Thursday.

Illumina stock closed Monday at $319.09, an increase of 0.02%.

Atlassian trades

Atlassian’s 0.625% convertible notes due 2023 were among the most actively traded convertible bonds early in the session with about $3 million on the tape.

However, activity surrounding the notes petered out into the afternoon.

The 0.625% convertible notes were trading at 138.5 with stock up slightly early Monday.

Atlassian stock was up about 0.54% early in the session. Stock closed the day at $103.75, an increase of 1.78%.

The notes dropped about 8 points outright but were moving in line on a dollar-neutral basis on Thursday as stock tanked following the software company’s third-quarter earnings report.

Mentioned in this article:

Aphria Inc. NYSE: APHA

Aqua America Inc. NYSE: WTR

Atlassian Inc. Nasdaq: TEAM

Illumina Inc. Nasdaq: ILMN

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