Morning Commentary: Convertibles market sees $1.65 billion of new supply; Western Digital prices

By Abigail W. Adams

Portland, Me., Jan. 31 – Wednesday’s session began with $1.65 billion in new deals hitting the secondary market.

Western Digital Corp. priced $1 billion of six-year convertible notes after the market close on Tuesday with a coupon of 1.5% and an initial conversion premium of 40%.

The pricing “was aggressive,” a market source said.

Pricing came at the cheap end of talk for a coupon of 1% to 1.5% and an initial conversion premium of 40% to 45%.

“It was nicely allocated to outrights,” a syndicate source said.

Western Digital’s stock was up as the new 1.5% convertible notes due 2024 entered the secondary market.

The notes were trading in a range of 102.5 to 103 early in Wednesday’s session, one market source said.

Another market source said the notes were climbing north of 103. Western Digital stock was up about 3% to $89.63 in early trading on Wednesday.

“The stock is up so everything is going just fine,” a source said.

The deal from the large-cap San Jose, Calif.-based computer data storage company is a landmark for the convertible space, a market source said.

Endeavour Mining Corp. priced $300 million of five-year convertible notes after the market close on Tuesday at the cheap end of talk with a coupon of 3% and an initial conversion premium of 32.5%.

Price talk had been for a coupon of 2.25% to 3% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

The new paper from the Rule 144A and Regulation S deal was in the 101.25 to 101.75 range in early trading, a market source said. Endeavor stock is not listed for trade in the United States, so “liquidity is meh,” a market source said.

Endeavor stock was up almost 5% on the Toronto Stock Exchange as the new paper entered the market.

JPMorgan Chase Financial Co. LLC priced $350 million of five-year cash-settled convertible notes linked to Voya Financial, Inc. stock after the market close on Tuesday with a coupon of 0.25% and an initial conversion premium of 32.5%.

Pricing came at the middle of talk for a coupon of 0% to 0.5% and at the cheap end of talk for an initial conversion premium of 32.5% to 37.5%.

The notes were trading in the 100 to 100.5 range early in Wednesday’s session, although the initial reference price will not be determined until next week.

The initial conversion premium will be 32.5% above the initial reference price, which will be equal to the volume-weighted average price of stock over a trading period of five consecutive days beginning Jan. 31, according to a company news release.

The cash-settled notes are more of a synthetic than a traditional convertible, a market source said.

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