Morning Commentary: Lumentum convertible notes jump on debut; markets focus on Fed

By Abigail W. Adams

Portland, Me., June 14 – While broader markets were firmly focused on the Fed on Wednesday and awaiting the afternoon announcement for some clarity in the great rate debate, one name occupied the attention of the convertibles secondary space.

Lumentum Holdings Inc. was the name of the day on Wednesday as its latest offering made its aftermarket debut.

Lumentum priced an upsized $525 million of long six-year convertible notes after the market close on Tuesday at par at the midpoint of talk with a coupon of 1.5% and an initial conversion premium of 30%.

Price talk was for a coupon of 1.25% to 1.75% and an initial conversion premium of 27.5% to 32.5%.

The greenshoe was also upsized to $78.75 million.

The initial size of the offering was $500 million with a greenshoe of $75 million.

The new paper was putting in a strong performance in the secondary space with equity markets mixed on the eve of the Federal Open Market Committee announcement and chair Jerome Powell’s press conference.

The Dow Jones industrial average was down 150 points, or 0.44%, the S&P 500 index was up 0.23%, the Nasdaq Composite index was up 0.28% and the Russell 2000 index was down 0.05% shortly before 11 a.m. ET.

Lumentum’s new 1.5% convertible notes traded up to 102.625 with stock strong in early trading.

The notes expanded 1.25 points to 1.5 points on hedge, a source said.

Lumentum’s stock was trading at $56.32, an increase of 5.29%, shortly before 11 a.m. ET.

The deal came as a refinancing with $132.8 million of net proceeds to be used to repurchase $125 million in principal of its 0.25% convertible notes due 2024 and $125 million to be used for the purchase of common stock in privately negotiated transactions.

The buyback price for Lumentum’s 0.25% convertible notes was 106.179, about 1.75 points above Tuesday’s closing price of 104.375, according to a market source.

The 0.25% notes traded at 103.5 on Monday, prior to the deal’s announcement.

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