Western Digital’s new convertibles rally, existing paper declines in heavy market focus

By Cristal Cody

Tupelo, Miss., Nov. 1 – Western Digital Corp.’s new upsized $1.4 billion of 3% convertible senior notes due 2028 that priced at par after the market closed on Tuesday dominated early trading on Wednesday and into the afternoon after the company was dropped to junk.

Secondary trading topped $130 million over the morning. Headed into the close, trading volume zoomed to $264 million and counting.

“They’re up about a point and a quarter, dollar neutral,” a source said of early trading. “The stock is up, so they’re actually up 2 points outright.”

The 3% notes rallied 3.25 points by late in the day.

“It priced at the riches – 3%, up 30%,” a source said of the deal. “It was very oversubscribed.”

Western Digital’s existing 1.5% convertible notes due 2024 (Ba2) declined 0.5 point on $90 million-plus of secondary trading over the morning and fell 0.75 point by the afternoon with the bulk of volume in the issue seen over the morning.

“You have people swapping into the new one and getting out of the old one,” one source said.

Moody’s Investors Service announced on Wednesday that it dropped the company’s senior secured and senior notes to junk.

Western Digital’s common stock closed up nearly 4%.

Overall secondary volume in the convertibles space totaled more than $286 million by around 10:45 a.m. ET.

About a quarter hour before the close, volume in the convertibles space hit more than $966 million.

Equity indices all closed higher as Treasury yields pulled back after the Federal Reserve left rates unchanged.

The S&P 500 index rose 1.05%, the Dow Jones industrial average improved 0.67%, the Nasdaq added 1.64% and the Russell 200 index closed up 0.45%.

The benchmark 10-year Treasury note yield fell 8 basis points to 4.79%.

Western Digital mixed

Western Digital’s $1.4 billion of 3% convertible senior notes due 2028 climbed to 103.25 versus a stock price of $41.74 on Wednesday, a source said.

The notes dominated the secondary market with $264.4 million of trading reported.

In late-morning trading, the notes traded at 102.553 with an equity price of $41.24 on $131.95 million of activity.

The deal was upsized by $100 million and priced at the rich end of coupon talk of 3% to 3.5%. The offering comes as Western Digital also reported Monday that it plans to split into two publicly traded companies.

Moody’s on Wednesday dropped the company’s senior secured and senior notes to junk on the company's plans to spin off its flash-based product segment as a tax-free distribution to shareholders. The senior ratings were downgraded to Ba2 from Baa3, while the secured paper was dropped to Ba1 from Baa3.

Western Digital plans to operate its hard disk drive segment and flash business as separate publicly held companies in a move expected to close in the second half of 2024.

Moody’s said it projects that Western Digital’s total debt plus preferred stock to EBITDA will exceed six times through fiscal year ending June 2025.

S&P Global Ratings placed the company on CreditWatch negative on Monday.

Western Digital’s existing 1.5% senior convertible notes due 2024 (Ba2) also led the tape in trading on Wednesday on $90.19 million of volume, most of it over the morning, a source said.

The notes fell 0.75 point to 98.5 versus a sock price of $41.77 going into the close.

In trading over the morning, the notes were down 0.5 point at 98.75 with an equity price of $40.90 on $90 million-plus of volume.

Western Digital’s stock rose 3.01% to $41.36 in early trading.

Shares finished the day up 3.96% at $41.74.

Mentioned in this article:

Western Digital Corp. Nasdaq: WDC

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