Top Axes:
Trading Recap:
There was a sharp reversal in US equities and overall market tone yesterday and President Trump pushed back tariffs on Auto for both Canda and Mexico. UST yield fell across the curve (2Yr- 10Yr; +.025 - +.035). ATEC 0 ¾ 03/15/30 traded higher, closing +3.3pts outright on its first day of trading. We were particularly active in KKR mandatory preferred (reach out for update market). INDI 4 ½ 11/15/27 traded up 2.5 pts outright, close 87.75 – 88.50 vs. 3.07. We active in both the 27s and 29s.
indie Semiconductor, Inc. (INDI)
With INDI stock up 17% today, the convertible bonds are lagging though still have upside with stock, after today’s move, down 43% since the longer INDI 3.5% '29 were issued in early December of 2024.
For those constructive on the equity, after the news today, longest dated INDI 3.5% 2029 offer twice the upside relative to the shorted dated INDI 4.5% 11/27. For hedge funds the INDI 3.5% 29 are compelling at a 990/45 credit vol pairing, more below.
On Tuesday INDI annc'd a strategic collaboration with Global Foundries (GFS) on automotive radar technologies.
GFS is a $20bb mkt cap and $4.3bb in cash and equivalents. INDI designs the chips and GFS makes them but maybe this partnership gets other large cap companies to look closer on INDI’s company valuation.
INDI 3.5% '29 offer double the upside for a $1 move higher in common stock relative to INDI 4 ½ 11/15/27 and on a standalone basis INDI 3.5% '29 are the cheaper of the two on convertible bond valuation.
Using INDI close of $3.07
INDI 4 1/2 11/15/27 88 (trade there today 50% delta) 730/45 credit vol pairing
INDI 3 ½ 12/15/29 88.5 (trade there today 77% delta) 990/45 credit vol pairing.
INDI 3.5% were marketed in early December 2024 850/50. For a credit reference, general HYG credit is 15 bps wider since 12/5/24.
In scenario analysis, moving stock $1 higher to $4.07 both converts nuke to:
INDI 4 1/2 11/15/27 93.75 (+5.75) 600/45 credit vol pairing
INDI 3 ½ 12/15/29 103.5 (+15) 940/45 credit vol pairing
Below, find a snapshot of equity comps, their stock performance since 12/31/24, and upside to Bloomberg analyst’s consensus 12 month targets:
INDI-down 24%, 130% upside to 12 month target of $7.07
PI-down 34%, 49.1% upside to 12 month target of $141.38
VIAV-up 12%, 15.7% upside to 12 month target of $13.06
LUNR-down 22%, 31.1% upside to 12 month target of $18.50
KLIC-down 19.6%, 38% upside to 12 month target of $51.83
INDI is an enterprise value of $795mm with $378mm in debt across both converts in total and a $644mm mkt cap
Cash takeout scenario analysis, stock up 30%, deal closing in 6 months:
INDI 4 ½ 11/15/27 88 v 3.07. In a takeout, bonds receive the par takeout put, up ~12 points. For those Hedge funds that are also short stock, on a 50% market delta it is a 6.6 point gain.
INDI 3 ½ 12/15/29 88.5 v 3.07. In a takeout, bonds also receive the par takeout put up ~11.5 points. For those that are also short stock, on a 75% market delta it is a 2.00 loss.
Pre-Mkt Convert Stock Movers:
Recent Notes – By Date
Desk Contacts:
Dave Sposito (Head of Desk) – 212-692-5172 – [email protected]
Zach Johannes (Trading) – 973-222-6189 - [email protected]
Walter McNulty (Sales) – 203-219-5837 – [email protected]
Chris Frascella (Sales) – 203-912-7535 – [email protected]
Rob Weaver (Strategist) – 203-399-7023 – [email protected]
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This commentary is not research or a recommendation and does not take into account whether any product or transaction is suitable for any particular client. SFI does not produce debt research and therefore this communication is not subject to all of the independence and disclosure standards and other requirements applicable to research reports under FINRA’s research rules. This document is only intended for institutional investors, as defined by FINRA Rule 4512(c), and is not subject to all of the independence and disclosure standards applicable to research reports prepared for retail investors. Clients should assume that this document is not independent of SFI’s proprietary interests. SFI trades, and will continue to trade, the securities covered in this document for its own account and on a discretionary basis on behalf of certain clients. Such trading interests may be contrary to or entered into in advance of this document.
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