Lumentum convertibles on deck; Ventas Realty improves; Lucid gains; Welltower active

By Abigail W. Adams

Portland, Me., June 12 – The convertibles primary market saw some action on Monday with one refinancing deal launching after the market close.

Lumentum Holdings Inc. 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%, according to a market source.

Goldman Sachs & Co. LLC is bookrunner for the Rule 144A offering, which carries a greenshoe of $75 million.

The new deal will be welcome in a market hungry for new paper and surprised by the lack of issuance thus far in 2023.

With rates high, equities strong and 2025 a significant maturity year, sources had expected to see a stampeded of issuance.

“The market should be busy,” a source said. “This is not busy.”

There has been $24.22 billion that priced over 41 deals year to date, according to the Prospect News database.

However, issuance should fall within the $60 billion to $80 billion range given the rate environment, a source said.

The macro uncertainty related to rates and the 2020/2021 stock market bubble have been barriers to convertible issuance with the market in wait-and-see mode for much of the year.

Executives tend to always think their company’s stock is undervalued and no company wants to issue a convertible note from a place of weakness.

However, using the stock prices of the pandemic era is an unrealistic benchmark and bankers are encouraging companies to green-light their deals now as opposed to later, sources said.

Issuance in the second half is expected to outpace the issuance of the first half, although the annual issuance may still fall short of the amount anticipated.

Potential issuers may continue to wait and see with the latest Consumer Price Index report on deck for Tuesday and the Federal Open Market Committee decision on Wednesday.

Meanwhile, it was a quiet day in the convertibles secondary space with equities launching the week with gains.

The Dow Jones industrial average closed Monday up 190 points, or 0.56%, the S&P 500 index closed up 0.93%, the Nasdaq Composite index closed up 1.53% and the Russell 2000 index closed up 0.46%.

There was $66 million in reported convertibles trading volume about one hour into the session and $507 million on the tape shortly before the market close.

Ventas Realty, LP’s 3.75% exchangeable notes due 2026 dominated activity in the space with the notes up outright and nominally improved dollar-neutral.

Lucid Group Inc.’s 1.25% convertible notes due 2026 continued the upward momentum sparked in early June by a follow-on offering.

Welltower Inc.’s 2.75% convertible notes due 2028 (Baa1/BBB+) were active with holders switching between Ventas and Welltower.

Ventas improves

After a largely flat aftermarket debut on Friday, Ventas’ 3.75% exchangeable notes due 2026 gained outright and improved dollar-neutral in heavy volume on Monday.

The 3.75% exchangeable notes were changing hands at 101.75 versus a stock price of $46.27 early in the session.

They were marked at 101 versus a stock price of $45.91 in the late afternoon.

They added about 0.125 point to 0.25 point dollar-neutral, a source said.

The notes dominated activity in the secondary space with $81 million in reported volume.

Ventas’ stock traded to a low of $45.43 and a high of $46.48 before closing at $46.07, an increase of 0.77%.

Ventas’ notes fell largely flat on their aftermarket debut on Friday, logging gains of about 0.25 point dollar-neutral.

Welltower’s 2.75% convertible notes due 2028 were stronger outright but unchanged dollar-neutral in active trade.

The 2.75% notes were seen at 102.375 versus a stock price of $81.14, according to a market source.

They were changing hands at 102.75 versus a stock price of $81.66 in the late afternoon.

There was $15 million in reported volume.

Welltower’s stock traded to a high of $81.82 and a low of $80.84 before closing at $81.81, up 0.88%.

While Ventas’ exchangeable notes are not rated, the company is investment grade.

Welltower and Ventas carry similar profiles with holders switching between the issues since Ventas made its aftermarket debut last Friday.

Lucid gains

Lucid’s 1.25% convertible notes due 2026 continued the strong uptrend sparked by the company’s follow-on offering in early June.

The 1.25% convertible notes added 1 point outright in heavy volume.

They were seen at 59.75 versus a stock price of $6.30 in the late afternoon.

There was $23 million in reported volume.

Lucid’s stock traded to a low of $6.23 and a high of $6.52 before closing at $6.27, an increase of 0.97%.

The notes have made strong gains since Lucid 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. on June 1.

The follow-on offering will be priced at a time deemed advisable by the underwriter, according to a Securities and Exchange Commission filing.

Lucid’s notes were trading on a 55-handle prior to the $3 billion capital raise.

The follow-on offering is expected to help with the borrow for Lucid, which has been historically tight.

Mentioned in this article:

Lucid Group Inc. Nasdaq: LCID

Lumentum Holdings Inc. Nasdaq: LITE

Ventas Realty, LP NYSE: VTR

Welltower Inc. NYSE: WELL

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