GEO Group exchanges; Shockwave Medical in focus on buyout; Cinemark improves

By Abigail W. Adams

Portland, Me., April 5 – The convertible bond primary market closed the first week of the second quarter with no new issuance.

The lack of activity was not a surprise with sources widely expecting a slowdown due to earnings season blackouts.

However, the pricing that issuers are commanding in the straight debt market may also be causing a drag on convertible issuance, a source said.

The convertible primary market was largely expected to capture crossover high-yield and investment-grade issuers addressing their upcoming maturities.

While crossover issuers have been tapping the market, it has not been a one-way street.

GEO Group, Inc. became the latest company to use proceeds from straight debt to refinance their outstanding convertible bonds.

Meanwhile, it was a quiet close to a relatively light-volume week in the convertible bond secondary space on Friday.

While quiet, the market was firm with equities strong on the heels of the latest U.S. nonfarm payrolls report.

The payrolls report came in much hotter than expected; however, market players were reading between the lines to keep hope alive for a June rate cut with the deceleration of wage growth seen as a positive, sources said.

The Dow Jones industrial average closed Friday up 307 points, or 0.80%, the S&P 500 index closed up 1.11%, the Nasdaq Composite index closed up 1.24% and the Russell 2000 index closed up 0.47%.

Trading volume was again on the light side as it has been, on average, over the past few weeks.

The average daily trading volume in the secondary space is $750 million; however, the average over the past few weeks has been about $500 million, a source said.

While market players look to the reactivation of the primary market to jumpstart activity in the space, topical news was driving volume on Friday.

Shockwave Medical Inc.’s 1% convertible notes due 2028 were in focus after Johnson & Johnson announced it would acquire the company in a deal with an enterprise value of $13.1 billion.

Cinemark Holdings Inc.’s 4.5% convertible notes due 2025 improved in heavy volume after an analyst upgrade.

GEO Group

GEO Group became the latest company to tap the high-yield market to refinance convertible debt.

GEO announced on Friday that it had entered into privately negotiated transactions with holders of its 6.5% exchangeable notes due 2026 to exchange $177 million in principal for cash and shares (see related article in this issue).

The $177 million cash portion of the exchanges were financed by GEO Group’s $1.275 billion two-tranche offering of secured and unsecured notes.

The exchange was a tagged-on use of proceeds for the refinancing deal that also included the company’s term loans and three series of senior notes.

The $230 million issue priced at par in February 2021.

The notes are deep-in-the-money and last traded on April 1 at 171, according to Trace data.

Market sources entered into 2024 with the expectation that high-yield issuers would flock to the convertibles market for their refinancing needs due to the cost of capital.

However, the relatively attractive pricing currently available in the high-yield market may test those expectations.

Companies may be reticent to do convertible deals and risk diluting stock with straight-debt yields manageable, sources have said.

Shockwave’s buyout

Shockwave’s 1% convertible notes due 2028 were in focus on Friday after Johnson & Johnson announced its $13 billion buyout of the company.

While active, the 1% convertible notes were off slightly on the heels of the announcement with only a modest bump up in stock.

“It was already priced in,” a source said.

The 1% convertible notes were trading just shy of 126 early in the session and were changing hands at 126.25 in the late afternoon.

There was $26 million in reported volume.

Shockwave Medical stock traded to a low of $324 and a high of $327 before closing the day at $326.34, an increase of 1.98%.

The gains in Shockwave’s stock and convertible notes came the previous week when the Wall Street Journal reported Johnson & Johnson was in active talks with the medical device company.

Johnson & Johnson announced Friday that it would acquire Shockwave for $335 per share in a deal with an enterprise value of $13.1 billion.

The deal will be funded by cash and debt with the convertible notes to be taken out in the transaction, a source said.

Cinemark’s upgrade

Cinemark’s 4.5% convertible notes due 2025 had some action on Friday with the notes improved following an analyst upgrade of stock.

The 4.5% convertible notes were up about 2 points outright with stock up about 3%.

They were trading at 147 in the late afternoon.

The notes improved about 0.375 to 0.5 point dollar-neutral on the move up, a source said.

Cinemark stock traded to a low of $19.22 and a high of $20.40 before closing the day at $19.77, an increase of 5.38%.

Cinemark’s stock and convertible notes were on the rise on Friday after a Wells Fargo analyst bumped the notes up to “overweight” from “underweight” and raised the price target to $23 from $13.

Mentioned in this article:

Cinemark Holdings Inc. NYSE: CNK

GEO Group Inc. NYSE: GEO

Shockwave Medical Inc. Nasdaq: SWAV

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