What is the coupon rate, conversion price, and conversion ratio of the senior notes, and how do they compare to current market rates?
Key terms of the Denison convertible senior notes (due 2031)
| Item | Detail (as disclosed) |
|---|---|
| Coupon | 5.5 % per annum, payable semi‑annual |
| Conversion price | US $30.00 per share |
| Conversion ratio | 33.33 shares per US $1,000 note (i.e., each $1,000 note is convertible into 33.33 % of a share at the $30 price) |
How these terms sit against today’s market environment
Credit‑spread perspective: A 5.5 % coupon on a senior unsecured note places the notes’ yield roughly 200–300 bps above the current 10‑year Treasury yield (~4.5 %) and 100–150 bps above the average high‑yield (BB‑B) corporate bond spread. For a company with a mid‑tier credit profile, the coupon is modest – it reflects a relatively “cheap” cost of capital compared with peers that are issuing at 6–7 % in the same maturity bucket.
Equity‑conversion premium: The $30 conversion price is ≈ 20 % above Denison’s current share price (≈ $24–$25), implying a conversion premium that protects noteholders if the stock stays flat, but also offers up‑side potential if the equity rallies toward $30+. The 33.33‑share conversion ratio translates to a conversion value of $1,000 × (Current Share Price / $30), so a 10 % rise in the stock would lift the note’s conversion value by roughly 10 % (≈ $100 per $1,000 note).
Market‑rate sensitivity: Because the notes are high‑yield and equity‑linked, their price will be driven by two forces: credit‑spread movements and stock‑price dynamics. A widening spread (e.g., due to a sector‑wide credit‑tightening) would depress the notes’ price even if the stock is stable, while a strong equity rally would compress the effective spread as the conversion value climbs, potentially pushing the notes toward a premium to par.
Trading implications
Short‑to‑mid‑term: With spreads still elevated relative to Treasuries, the notes can be attractive for yield‑seekers. If you are bullish on Denison’s uranium exposure and expect the share price to breach the $30 conversion level within the next 12‑18 months, a long position in the convertible notes (or the underlying equity) offers a “floor” of 5.5 % coupon plus upside.
Risk‑off scenario: Should credit spreads widen or the uranium market face a downturn, the notes could trade at a discount to par despite the coupon, as the conversion value falls below the note’s principal. In that case, a short position (or a spread trade using the notes versus a comparable high‑yield bond) may capture the spread‑compression risk.
Actionable view: Given the modest coupon, a conversion‑premium of ~20 %, and the current high‑yield environment, the notes are best suited for balanced‑risk investors who can hold the 5.5 % income while positioning for equity upside. Monitor the U.S. 10‑yr Treasury curve, high‑yield spread trends, and Denison’s share price relative to the $30 conversion level; a breach of the conversion price will likely trigger a re‑rating of the notes toward a premium, while any spread‑tightening will reinforce the coupon’s attractiveness.