What is the market’s perception of the conversion premium and upside potential for noteholders?

Market view of the conversion premium / up‑side

The private exchange of VIAVI’s 0.625 % senior convertible notes (due 2031) signals that the conversion premium embedded in the notes is perceived as relatively modest. By offering holders the chance to swap or subscribe for new notes at a price that is only a small discount to the current equity level, the company is indicating that the premium over the “in‑the‑money” conversion price is low enough to make conversion attractive even if the stock stays flat. In other words, the market is pricing the notes as if the conversion price is only a few percent above today’s share price – a premium that leaves a meaningful upside cushion for noteholders should the stock rally.

Because the notes carry a very low coupon (0.625 %) and a long‑dated maturity (2031), the primary driver of value is the equity upside. The modest premium means that any upward move in VIAVI’s share price translates quickly into a conversion gain, so investors view the notes as a “synthetic long” position with limited downside (the coupon) and a sizable upside potential. The market therefore treats the convertible notes as a cheap way to gain exposure to the equity, and the upside is seen as “high‑conviction” – essentially the same upside a pure equity holder would enjoy, but with the added safety of the note’s cash flow.

Trading implications

• Long VIAVI equity – The low conversion premium suggests that the conversion price is near the current market level, so a modest rise in the stock (5‑10 %+) would immediately make conversion attractive. Taking a long position now positions you to capture that upside while still benefitting from the note’s coupon if the price stalls.
  
• Short the notes (or sell the conversion rights) – If you think the stock is over‑valued, the modest premium also means the notes are cheap relative to the conversion value. A short position in the convertible (or a “reverse‑conversion” trade) could profit if the equity stalls or falls, as the note’s cash‑flow component will dominate.
  
• Watch for further conversion activity – Because the exchange is private, any subsequent public tender or a broader conversion window would likely tighten the premium further and could trigger a sharper price move. Keep an eye on VIAVI’s upcoming earnings and any guidance on capital‑allocation, as a stronger outlook will accelerate conversion demand.
  

Overall, the market perceives the conversion premium as low and the upside as strong, making the notes a compelling proxy for a bullish stance on VIAVI’s equity with limited downside protection.