Ford convertible notes fall outright, contract dollar-neutral; Alnylam weaker outright

By Abigail W. Adams

Portland, Me., Sept. 20 – It was another slow day in the convertibles secondary space on Tuesday as risk aversion swept through markets at the launch of the Federal Open Market Committee’s two-day meeting.

Equity indexes wiped out their gains from the previous session and were firmly in the red as the market braced for what is widely expected to be another 75 basis point interest rate increase.

Treasury yields continued to march higher with the two-year and 10-year yields marking multi-year highs while remaining steeply inverted.

The Dow Jones industrial average closed Tuesday down 313 points, or 1.01%, the S&P 500 index closed down 1.13%, the Nasdaq Composite index closed down 0.95% and the Russell 2000 index closed down 1.4%.

There was $58 million in reported trading volume about one hour into the session and $322 million on the tape about one hour before the market close.

The market remained in wait and see mode ahead of Wednesday’s announcement, sources said.

However, topical news sparked some activity in the space.

Ford Motor Co. was the name of the day after the automaker became the latest blue chip company to issue a dire earnings warning.

Ford’s 0% convertible notes due 2026 fell below par and contracted dollar-neutral in heavy volume.

Alnylam Pharmaceuticals Inc.’s 1% convertible notes due 2027 continued to see heavy volume with the notes weaker outright but moving in line dollar-neutral.

Zendesk Inc.’s 0.625% convertible notes due 2025 were unchanged in active trading after shareholders approved the company’s sale to a private equity investor group.

Ford in focus

Ford’s 0% convertible notes due 2026 were in focus with the notes falling outright and contracting dollar-neutral after the automaker became the latest to downwardly revise its third-quarter earnings forecast.

The 0% notes fell about 7.5 points outright with stock off more than 12%.

The 0% convertible notes were changing hands at 102.375 versus a stock price of $13.49 early in the session.

They fell below par as the session progressed for the first time since July.

The notes were trading at 99.75 versus a stock price of $13.14 in the late afternoon.

They contracted about 0.25 point dollar-neutral, a source said.

There was $20 million in reported volume.

Ford’s stock traded to a high of $14.23 and a low of $13.01 before closing the day at $13.09, a decrease of 12.32%.

Ford announced post-close on Monday that third-quarter earnings would fall far short of expectations due to supply chain and inflation pressures.

The company released revised guidance for operating profits of $1.4 billion to $1.7 billion due to a production delay of 40,000 to 45,000 vehicles and $1 billion in higher-than-expected costs.

Analysts had expected an operating profit of $2.9 billion.

Alnylam down outright

Alnylam’s 1% convertible notes due 2027 were down outright but unchanged dollar-neutral in heavy volume on Tuesday.

The notes were down 1 point outright with stock off almost 2% in intraday activity.

They were wrapped around 101 in the late afternoon, a source said.

While down outright, the notes were unchanged dollar-neutral.

Alnylam’s stock traded to a low of $210.84 and a high of $219.63 before closing the day at $212.01, a decrease of 1.85%.

Zendesk active

Zendesk’s 0.625% convertible notes due 2025 were among the most actively traded issues of Tuesday’s session after shareholders approved the sale of the company to an investor group led by private equity firms Permira and Hellman & Friedman LLC.

While active, the news did little to move the 0.625% notes, which remained on a 98-handle.

The notes were changing hands at 98.25 heading into the market close, according to a market source.

There was $11 million in reported volume.

Zendesk’s stock was either side of flat on the approval and closed the day at $76.52, a decrease of 0.039%.

Shareholders approved the sale of the company on Monday, despite the objection and alternative proposal Light Street Capital Management, which owns a 2% stake in the company, made last month.

While Light Street argued the buyout proposal was too low, the majority of shareholders disagreed and approved the $10.2 billion all-cash transaction that valued the company at $77.50 a share.

The takeover amount is a more than 50% decrease from when the company’s stock peaked at $157 in February 2021.

Zendesk’s 0.625% convertible notes were, at one time, deep-in-the-money and traded as high as 150 with stock at its peak.

They were trading in the 130 range as recently as April before the market rout May and June pushed them well below par.

The notes bottomed out at 90 in June before news of the company’s pending takeover broke and pushed the notes to their current level.

The takeover will trigger a par put on the notes with the transaction expected to close in the fourth quarter.

Mentioned in this article:

Alnylam Pharmaceuticals Inc. Nasdaq: ALNY

Ford Motor Co. NYSE: F

Zendesk Inc. NYSE: ZEN

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