Morning Commentary: Wolfspeed’s convertibles supported in receptive secondary trading

Chicago, Nov. 18 – Recently priced new issues from a blockbuster week in the convertible bond space were still being supported in early secondary trading on Friday morning, with equity indexes generally modestly in the green as the day got started.

Positive and negative movement in individual corporate stocks were generally contained to modest-ish rises and falls, but an earnings beat lifted one name out of the pack and the company’s convertible bonds followed suit.

Before 11 a.m. ET, the Dow Jones industrial average was up 138 points, or 0.41%, the S&P 500 index was higher by 0.31%, the Nasdaq Composite index was nearly flat and the Russell 2000 index was up 0.99%.

Wolfspeed gains

The largest of the convertible bond deals to price on Wednesday evening, Wolfspeed Inc.’s upsized $1.525 billion of seven-year convertible notes with a 1.875% coupon, was still ticking higher in early trades reported on Friday morning.

Early Friday activity lifted the notes routinely into the 104 zone, with a new high of 104.775.

In heavy demand during pricing, the enthusiasm for the deal had trailed the bonds into the secondary space on Thursday, with the bonds steadily notching higher as the day progressed.

They hit a high of 104.5 on Thursday and then came in to a 103-handle in late Thursday trading.

The semiconductor manufacturer’s stock was relatively even, or flat, on Friday morning. The stock was marked at $90.34 midmorning, near Thursday’s close of $90.77.

With the warm reception on the notes, use of the upsized $225 million 13-day greenshoe is a likely possibility.

The new 1.875% convertible bonds revived interest in the company’s other existing convertible bond issue, the $750 million 0.25% convertibles due in February 2028.

A generally liquid issue, the bonds were marked at 96.25 versus a stock price of $90.09 heading into the close on Thursday.

They opened Friday about 0.5 point higher, at around 96.75.

Palo Alto active

In existing issues, the bond market was reacting favorably to an earnings beat from Palo Alto Networks, Inc. and news that the company will be acquiring Cider Security for $195 million.

The Santa Clara, Calif. cybersecurity company has two convertible bonds outstanding: 0.375% convertible notes due 2025 and 0.75% convertible senior notes due 2023.

The 0.375% convertibles leapt up over 10 points in the early going, trading around 175 after spending most of Thursday in the low 160s.

Similarly, early action moved the 0.75% bonds up more than 10 points. Early reports put the bonds near 191.5, a lift from the high 170s on Thursday and a steady upshift from 2022’s low for the bonds at 164 on Nov. 7.

The company’s stock was higher by over 8% on Friday morning, noted at $169.34.

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