J Wood chips in to Microchip US$800m sale
Microchip Technology secured US$800m on Monday from the upsized sale of four-year, put-three convertible bonds priced at zero coupon that provides the chipmaker with low-cost funding to repay higher-cost bank debt.
After marketing a US$600m offering, JP Morgan, Bank of America and Truist Securities upsized to US$800m priced at a 40% conversion premium, through the aggressive end of 32.5%–37.5% price talk.
J Wood Capital not only acted as independent adviser but also purchased US$25m of stock in the transaction to help facilitate delta hedging by arbs participating in the deal, a novel principal commitment.
After falling just 2.1% during marketing on Monday, Microchip shares rebounded by 3.3% on Tuesday to US$76.86, near the US$81.43 52-week high set late last month.
“Equity investors seemed to like the deal,” said one CB arb manager who participated in the offering. “This is a well-known issuer returning to the convert market. J Wood didn’t need to purchase stock, as the borrow was fine.”
Microchip, which bulked up through a series of acquisitions a decade ago, spent US$60.5m of the proceeds raised on a capped call to offset dilution from the CB up to a share price of US$148.82, a 100% premium.
J Wood loaned the shares purchased to arbs, covering about one-quarter of the shares required to fully delta-hedge the CBs, bankers involved in the process told IFR. The capped call provided additional support for the underlying through purchases of the stock by those providing the derivative.
A private affair
J Wood’s stock purchase was a novel solution to facilitate stock borrow but does expose the firm to risk.
Because J Wood acted as an intermediary, the purchase was a private placement under securities regulations. As a private placement, the position cannot be hedged for 30 days and cannot be sold for six months – J Wood agreed to a longer 45-day lockup on the US$25m purchase.
Founded in 2013 by former JP Morgan banker Jason Wood, the adviser has purchased stock alongside at least seven other CB new issues, including transactions for Alignment Healthcare, Sarepta Therapeutics and MP Materials. The commitment to Microchip stems from a long-standing relationship dating back to the early 2000s.
There are other ways to facilitate stock borrow, the most common being for an issuer to simultaneously buy back stock and lend those shares. J Wood facilitating the borrow allowed Microchip to maximise proceeds raised.
Investor appeal, both outright long-only equity and CB as well as convert arbs, lies in Microchip’s operational turnaround.
Microchip, rated Baa2 and BBB by Moody’s and Fitch, used the CB proceeds to repay a portion of its US$1.1bn of commercial paper borrowings on which it pays about 4%. The leverage-neutral refinancing leaves a total debt load in place of US$7.77bn, according to LSEG data and securities filings.
The refinancing comes amid improved operating results after having worked through excess inventory. In its fiscal third quarter ended December 31, the company reported a non-GAAP net profit of US$252.8m as net sales grew by 15.6% to US$1.03bn.
This is the first significant financing for Microchip since reinstalling longtime CEO Steve Sanghi in July 2025, after ousting prior head Ganesh Moorthy following a period of sustained underperformance.