Leisure, airline convertibles under pressure outright; Five9 notes improve; Kadmon eyed

By Rebecca Melvin

Concord, N.H., July 19 – Convertibles players bought up Five9 Inc.’s 0.5% convertible notes due 2025 on Monday after news that Zoom Video Communications Inc. is acquiring the cloud contact center software provider for $14.7 billion in stock, a 13% premium over Five9’s market capitalization of about $11.9 billion on Friday.

But there was pressure on an outright basis on convertibles in general amid a broad-based retreat in financial markets due to worries about the effect of the Covid-19 pandemic’s Delta variant on the economy.

The Dow Jones industrial average tumbled 725.81 points, or 2.1%, on Monday, extending losses from Friday when the index snapped a three-week winning streak. The S&P 500 index and Nasdaq were down 1.6% and 1.1%, respectively, and Stoxx Europe 600 dropped 2.3%, led lower by shares of travel, leisure and commodities companies. All the indices closed a bit off their lows for the day, although the Stoxx was close to its low.

Airline securities were in the crosshairs on Monday.

Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB) were the second most-active convertibles. The convertibles managed to regain a couple of points in the flurry of trades from the market’s opening. It was down 7.5 points outright at 138.75 in the early going, when shares were about $47.75. The convertible edged back though and were down just 3.8 points near the close of trading, trading 142.46 against a closing stock price of $48.50, which was down $1.41, or 2.8%, on the day.

Trading volume in Southwest was robust, with $28,464,000 of bonds changing hands by shortly after midday ET, compared to about $4.7 million on the tape by 10:30 a.m. ET.

Other airline names were not seeing a lot of action. But JetBlue Airways Corp.’s 0.5% convertible notes due 2026 weakened again, with a trade down 1.6 points on the day at 96.33.

The convertible notes of several airlines were trading off on an outright basis on Friday with stock under pressure as Covid-19 variant concerns dampened the reopening trade.

Booking Holdings Inc.’s and Expedia Group Inc.’s convertibles were active amid the downdraft on stocks, but they appeared to hold in on a dollar-neutral basis.

The Expedia 0% convertible notes due 2026 traded at 107 in the early going against shares that were at $151.29, down about 4%, in intraday activity. That pricing compared to the Expedia convertibles trading at 107.875 versus the stock at $158.79 late Thursday.

By the end of the session on Monday, the Expedia bond was around 105.5 with the underlying stock at $151.64.

Booking’s sister convertibles, including its 0.9% convertibles due Sept. 15, 2021 and 0.75% convertibles due 2025, both saw strong trading. The 0.75% convertibles due 2025 traded at 140 with shares down to 2.5% at $2,060.71 initially. Booking shares continued to lose ground during the session, closing down $77.17, or 3.6%, at $2,067.55.

The Booking convertibles due in September managed to close well above par at about 104.3 and the convertibles due 2025 finished the session a couple of points worse at 138.267.

The convertibles of Kadmon Holdings Inc., a smaller issue of $240 million in size that priced earlier this year, was seen on the tape at 5.5 points below par. Shares of the company fell 28 cents on Monday, or 6.5%, to $4.00.

The move lower in the shares of the New York-based biopharmaceutical company reversed gains made on Friday on news that Rezurock, its treatment for chronic graft-versus-host disease in adults and pediatric patients older than 12, was approved by the Food and Drug Administration. The 3.625% Kadmon bond matures in 2027 and changed hands on Monday at 94.561.

Five9 zooms on buyout

Five9’s 0.5% convertibles due 2025 moved up more than 6 points in the early going to 152.377, according to Trace data, against the underlying stock, which was up 4.3% to $185.17. At the end of the session the bond price was up 7.4 points on the day to 153.495 versus an underlying share price of $187.90.

The San Ramon, Calif.-based provider of cloud contact center software priced $747.5 million of the convertibles on May 21, 2020. They were issued together with stock to repurchase the company’s older 0.125% convertibles due 2023.

The paper was the top volume name of the day with $38,674,000 traded by the end of the session. But its percentage of overall volume, which was about $527 million, wasn’t as impressive as it was at the beginning of the day when $25,934,000 of Five9 bonds changed hands by 10:30 a.m. ET, compared to $147,202,000 bonds in total in the convertibles space, according to Trace data.

Zoom announced on Sunday that it is acquiring Five9 for 0.5533 of a share of Zoom Video Communications for every Five9 share. That values Five9 at $200.28 a share.

Mentioned in this article:

Booking Holdings Inc. Nasdaq: BKNG

Expedia Group Inc. Nasdaq: EXPE

Five9 Inc. Nasdaq: FIVN

JetBlue Airways Corp. Nasdaq: JBLU

Kadmon Holdings Inc. Nasdaq: KDMN

Southwest Airlines Co. NYSE: LUV

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