Lumentum convertible offering eyed; SoFi notes improve; Bloom Energy hits new high

By Abigail W. Adams

Portland, Me., June 13 – The convertibles primary market had one new offering on deck as markets digested the latest piece of inflationary data and awaited the Federal Open Market Committee’s Wednesday announcement.

Serial convertible issuer Lumentum Holdings Inc. plans to price $500 million of long six-year convertible notes after the market close on Tuesday in a refinancing of its 2024 notes.

While the deal modeled cheap based on underwriter’s assumptions, its real value will come from the buyback of its outstanding notes.

The new deal was being marketed against a continued strong equity backdrop with indexes extending their gains after the latest Consumer Price Index report.

The report was mixed with the annual core CPI continuing to accelerate at a faster-than-anticipated clip, while headline CPI decelerated more than expected.

Core CPI was 5.3% versus the 5.2% expected, and CPI was 4% versus the 4.1% expected.

However, equities were strong with the Dow Jones industrial average up 146 points, or 0.43%, the S&P 500 index up 0.69%, the Nasdaq Composite index up 0.83% and the Russell 2000 index up 1.23%.

The secondary space was active with $109 million in reported convertibles trading volume about one hour into the session and $560 million on the tape about one hour before the market close.

There was a lift-a-thon in the market with buyers flooding the space, especially early in the session as Treasuries rallied.

However, Lumentum’s 0.5% convertible notes due 2028 were lower in active trade on the heels of the latest offering.

SoFi Technologies Inc.’s 0% convertible notes due 2026 were on the rise in heavy volume as the bull run in the company’s stock continued.

Bloom Energy Corp.’s 3% convertible notes due 2028 hit new outright heights and continued to expand dollar-neutral as stock continued its upward momentum.

Lumentum on tap

Lumentum plans to price $500 million of long six-year convertible notes after the market close on Tuesday with price talk for a coupon of 1.25% to 1.75% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of 400 basis points over SOFR and a 40% vol.

Using those assumptions, the deal looked about 0.84 point cheap at the midpoint of talk, a source said.

While the deal did not scream cheapness, its real value comes from the use of proceeds.

Proceeds will be used to repurchase a portion of the company’s 0.25% convertible notes due 2024 and up to $150 million of its common stock in privately negotiated transactions.

Refinancing deals tend to come richer than stand-alone offerings because investors participating in the exchange get a kiss, a source said.

The deal played to strong demand with books closing in the early afternoon.

Pricing will be falling toward the rich end of talk with price talk narrowing to a coupon range of 1.25% to 1.5% and an initial conversion premium of 30% to 32.5%, a source said.

While Lumentum’s latest offering was in the works, the company’s 0.5% convertible notes due 2028 were lower in heavy volume.

The 0.5% notes were trading at 77.625 versus a stock price of $53.18 early in the session, according to a market source.

They were trading at 77.875 versus a stock price of $54.01 in the late afternoon.

The notes contracted about 0.5 point dollar-neutral, a source said.

There was $13 million in reported volume.

Lumentum’s stock traded to a low of $52.56 and a high of $54.95 before closing at $53.49, up 0.38%.

SoFi’s run

SoFi’s 0% convertible notes due 2026 saw heavy volume on Tuesday with the notes continuing to gain as stock extended its bull run.

The 0% convertible notes jumped 1 point outright.

They were trading at 81.5 versus a stock price of $9.48 in the late afternoon.

There was $16 million in reported volume.

SoFi’s stock traded to a low of $8.89 and a high of $9.61 before closing at $9.54, an increase of 4.15%.

Stock has skyrocketed almost 100% since the passage of the U.S. debt-limit deal, which included the resumption of student loan payments, something SoFi has long lobbied for.

While outright holders were the real winners of the notes’ gains, hedge players on a light hedge also made out, a source said.

However, those who played the notes on a heavier hedge saw losses.

Bloom Energy’s new heights

Bloom Energy’s 3% convertible notes due 2028 hit new outright heights and continued to add dollar-neutral as stock continued its upward momentum.

The 3% notes gained 4 points outright with stock up 4%.

The convertibles were changing hands at 119.375 versus a stock price of $17.74 in the late afternoon.

The notes added 0.5 to 0.75 point dollar-neutral.

There was $15 million in reported volume.

Bloom Energy’s stock traded to a low of $16.86 and a high of $17.86 before closing at $17.66, an increase of 4.81%.

Stock has gained about 34% over the past month with a recently announced partnership fueling its strength.

Bloom Energy recently announced that it was partnering with U.K-based Perenco to install 2.5 megawatts of the company’s solid oxide fuel cells at a site in England.

Mentioned in this article:

Bloom Energy Corp. NYSE: BE

Lumentum Holdings Inc. Nasdaq: LITE

SoFi Technologies Inc. Nasdaq: SOFI

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