Sea convertible notes in focus as equity plummets; Ford gains; Affirm hits new low

By Abigail W. Adams

Portland, Me., Jan. 4 – There was an uptick of activity in the convertibles secondary space on Tuesday as convertible issuers saw huge stock moves on a volatile day for equities.

The Dow Jones industrial average continued to set fresh records while the tech heavy Nasdaq Composite sold off.

The S&P 500 index hit a fresh record early in the session, was dragged into negative territory as the session progressed but regained footing and closed the day largely flat.

The Dow closed the day up 214 points, or 0.59%, the Nasdaq Composite closed down 1.33%, the S&P 500 closed down 0.06% and the Russell 2000 finished down 0.16%.

“It’s out with the growth and in with the value,” a source said.

There was $116 million of convertibles trading on the tape about one hour into the session and $926 million on the tape heading into the close.

Sea Ltd.’s 0.25% convertible notes due 2026 were in focus as the Singapore-based global consumer internet company’s equity plummeted.

Affirm Holdings Inc.’s 0% convertible notes due 2026 set a new low as stock sold off alongside other high-flyers.

However, Ford Motor Co.’s 0% convertible notes due 2026 surged on an outright and dollar-neutral basis.

Sea in focus

Sea’s 0.25% convertible notes due 2026 were the most actively traded name in the secondary space on Tuesday as the company’s equity plummeted.

The 0.25% notes sank more than 3 points outright with the company’s equity down more than 11%.

The notes were changing hands at 89.5 versus an equity price of $197.58 at market close.

The yield to maturity on the notes is now about 2.5%, a source said.

The notes were trading with a spread of about 116 basis points over Treasuries with a similar duration, which one source felt was tight.

“They’re holding up better than expected,” the source said, pegging the bond floor for the notes between 85 and 87.

There was $33 million in reported volume.

Sea’s American Depositary Shares traded to a low of $194 and a high of $207.07 before closing the day at $197.84, a decrease of 11.41%.

Sea’s equity, which has been on a downward trend since mid-November, was under added pressure following news Shenzhen, China-based gaming company Tencent Holdings Ltd. plans to cut its stake in the company.

Tencent plans to sell 14.5 million shares within the price range of $208 to $212, Reuters reported.

The ADR space was under particular pressure on Tuesday as concern over a contagion from China Evergrande Group’s collapse again reared its head.

The embattled property developer was ordered to demolish 39 buildings on a resort island in the Hainan province and protests have started with investors seeking repayment gathering outside Evergrande headquarters on Tuesday.

Bilibili Inc.’s 0.5% convertible notes due 2026 were also down in active trading as equity plummeted.

The notes fell 2 points with equity off 8%.

They were changing hands at 82.5 versus an equity price of $40.85 at market close with $11 million in reported volume.

The Shanghai-based video sharing website’s American Depositary Shares traded to a high of $42.66 and a low of $39.92 before closing the day at $40.42, a decrease of 8.94%.

Affirm’s new low

Affirm’s 0% convertible notes due 2026 hit a new low as stock sold off alongside other high-flyers.

The 0% convertible notes were down more than 3 points outright with stock off more than 10%.

They were trading at 85.5 versus a stock price of $85.56 at the market close.

The yield on the notes was about 5.5%.

There was $24 million in reported volume.

Affirm’s stock traded to a high of $95.52 and a low of $80.09 before closing the day at $85.41, a decrease of 10.29%.

Ford surges

Ford’s 0% convertible notes due 2026 continued to outperform with the notes posting gains on an outright and dollar-neutral basis.

The 0% convertible notes rose 10 points with stock up more than 11%.

The 0% notes were changing hands just shy of 153 versus an equity price of $24.28 at the market close.

The notes expanded about 0.5 point dollar-neutral, a source said.

There was about $24 million in reported volume.

Ford’s stock traded to a high of $24.56 and a low of $22.42 before closing the day at $24.31, an increase of 11.67%.

Stock jumped on news the car manufacturer plans to double production of its electric pick-up truck.

Ford’s 0% convertible notes were one of the most successful new issues of 2021.

Mentioned in this article:

Affirm Holdings Inc. NYSE: AFRM

Bilibili Inc. Nasdaq: BILI

Ford Motor Co. NYSE: F

Sea Ltd. NYSE: SE

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