Five9 convertibles fall outright, unchanged dollar-neutral; Splunk active; Semtech quiet

By Abigail W. Adams

Portland, Me., Oct. 10 – It was a quiet day in the convertibles secondary space with bond markets closed and equities extending losses after a choppy session.

Equity indexes wavered between gains and losses throughout the session before closing in the red with the Dow Jones industrial average down 94 points, or 0.32%, the S&P 500 index down 0.75%, the Nasdaq Composite index down 1.04% and the Russell 2000 index down 0.60%.

Convertibles secondary activity was anemic, as expected, with $30 million in reported volume about one hour into the session and $230 million on the tape about one hour before the market close.

There was little activity in last week’s sole deal – Semtech Corp.’s 1.625% convertible notes due 2027.

The notes remained well below par on an outright basis although they expanded dollar-neutral.

While there was little activity in recent issues, topical news pushed Five9 Inc.’s 0.5% convertible notes due 2025 into the spotlight.

The convertible notes sank outright but were unchanged dollar-neutral as the company’s stock tanked following the surprise departure of its CEO.

Splunk Inc.’s convertible notes remained active although with little movement.

Semtech quiet

The most recent deal to clear the primary market was quiet on Monday with little price movement in thin trading.

The notes continued to underperform on an outright basis although they were holding on swap.

The notes traded down to a 96-handle in intraday activity but regained some footing as stock turned green in the late afternoon.

The notes were changing hands at 97.5 in thin volume heading into the market close.

While well below par on an outright basis, they continued to perform well on swap with the notes up about 1 point dollar-neutral since pricing, sources said.

Semtech’s stock pared some losses after hitting a new 52-week low on Monday.

Stock traded to a new 52-week low of $26.68 and a high of $27.69 before closing the day at $27.55, an increase of 1.18%.

The semiconductor company’s stock hit a 52-week low after announcing the convertible notes deal last Thursday and set a new one last Friday as Advanced Micro Devices, Inc.’s earnings warnings dragged down the industry.

The deal modeled cheap based on underwriter’s assumptions of a credit spread of 425 basis points and a 40% vol., a source said.

The notes looked about 1.5 points cheap at the midpoint of talk for a coupon of 1.25% to 1.75% and an initial conversion premium of 27.5% to 32.5%.

Semtech is a “blast from the past” with the company a former convertible notes issuer in the early 2000s, a source said.

Some sources were surprised to see the deal come given the continued volatility in equities.

However, the primary market may have been trying to “catch some wind” from the rally in equities early last week, although the rally did not hold, a source said.

Five9 falls outright

Five9’s 0.5% convertible notes due 2025 were in the spotlight on Monday with the notes sinking outright as stock tanked following the surprise departure of the company’s CEO.

The 0.5% notes sank 8 points outright as stock fell more than 25%.

The notes were changing hands at 87.25 versus a stock price of $64.24 in early trade.

They were seen at 86.5 versus a stock price of $59.05 in the late afternoon.

While down outright, the notes were moving in line dollar-neutral, which was a disappointment to some.

“With that type of move, you’d hope that it’d appreciate,” a source said.

There was $14 million in reported volume.

Five9’s stock traded to a high of $66.34 and a low of $57 before ending the day at $57.30, a decrease of 25.56%.

News broke on Monday that Five9 CEO Rowan Trollope will leave the company and resign from the board.

The news sent the company’s stock into a tailspin although it simultaneously announced it was raising its third-quarter guidance.

The call center software company adjusted its third-quarter guidance to 38 cents per share from its previous range of 31 cents to 33 cents.

Splunk active

Splunk’s convertible notes remained active on Monday although with little movement in price.

The soon-to-mature 0.5% convertible notes due Sept. 15, 2023 were slightly weaker in active trading.

The notes were changing hands on a 95-handle and were wrapped around 95.5 heading into the close.

The notes have little conversion value with the conversion premium about 100%.

The yield on the notes was 5.5%.

There was $9 million in reported volume.

Splunk’s 1.125% convertible notes due 2025 were also active on the tape with the notes largely unchanged at 89.5.

There was $6 million in reported volume.

Splunk’s stock traded to a high of $73.35 and a low of $71.11 before closing the day at $72.12, a decrease of 1.18%.

Mentioned in this article:

Five9 Inc. Nasdaq: FIVN

Semtech Corp. Nasdaq: SMTC

Splunk Inc. Nasdaq: SPLK

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