Convertibles little changed in light volume; FXCM crumbles; Zillow quiet ahead of earnings

By Rebecca Melvin

New York, Feb. 7 – The convertible bond market was little changed amid lackluster volumes on Tuesday as a lull in new issuance and quarterly earnings reports from convertible issuers dampened activity, New York-based traders said.

“Everything is relatively unchanged. Some people are rotating capital across sectors and doing a little bit of rebalancing. But a lot of people are waiting,” the trader said.

FXCM Inc. was a focus of the session, and its convertibles crumbled by more than 20 points amid a 50% plunge in the underlying equity after a Commodity Futures Trading Commission order settled charges against the foreign-exchange trading company’s top managers for engaging in fraudulent activities.

The FXCM convertible “blew up,” falling to 27.5 from about 50, a New York-based trader said.

But the FXCM convertible is a relatively small bond of less than $200 million and it didn’t trade as tumultuously as the common shares, which dropped to a record low in heavy volume of about 2 million shares.

Elsewhere, Zillow Group Inc. changed hands but was not actively traded ahead of its fourth-quarter earnings report posted after the market close.

The Zillow 2% convertible senior notes due 2021 traded flat to slightly higher at 103.2 during the session against shares that were up about 1% to 1.5%. But shares dropped more than 6% in after-hours action after the Seattle-based real estate search company posted a net loss despite strong revenue and traffic numbers.

There was no convertible trading action to speak of in the Zillow bonds ahead of the news because ‘no one wants to go first in this market,” a New York-based trader said. “Everyone wants to react to any trading, so we are in a bit of a holding pattern.”

Pandora Media Inc. is slated to report earnings later in the week, and the Pandora 1.75% convertible notes due 2020 are likely to be in play at that point.

As for Tuesday’s session, there was also some activity in Priceline Group Inc. as those investment-grade bonds were seeing support after being weak for a while, a trader said, noting that the bonds’ pricing doesn’t fluctuate much.

The Priceline 0.9% convertible notes due 2021 traded up 0.25 point to 108.25, and the Priceline 1% convertibles due 2018 were at 170.28, up 1.6 points, according to Trace data at late morning.

Shares of the Norwalk, Conn.-based travel site were up $5.68, or 0.4%, at $1,592.86 at that time and closed up $11.52, or 0.75%, to $1,598.7.

There was also some activity in Tesla Inc.’s convertibles, but they were seen about unchanged on the day, a trader said.

The Tesla 1.25% convertibles due 2021, or the B tranche, was more active than the A tranche and seen at 95.75, which was up 1.4 points on an outright basis. The Tesla 0.25% convertibles due 2019, or the A tranche, was at 97.37, or up 0.5 point on an outright basis. The Tesla common stock was up 72 cents, or 0.3%, at $258.49.

The new issue market was quiet, with no new deals launched or priced yet this week. The primary market lull contributed to the overall market’s quiet tone.

“The things that came in the first few weeks [of the year] were not nearly enough to move the needle,” a trader said of the levels of new issuance, which are improved compared to last year. He concurred with the expectation that more new issuance is on the horizon, but until the next batch comes, the market will remain quiet, he said.

A second trader said that the market is “event driven” right now and poised to respond to earnings volatility and new issues.

FXCM ‘blows up’

FXCM’s 2.25% convertible notes due 2018 crumbled to the upper 20s from about 50 previously.

Near the end of the session, the bond was quoted at 27.5.

Shares of the New York-based foreign-exchange trading company fell $3.40, or about 50%, to $3.45, which was a record low for the securities. In after-hours trading action, the stock gained back $0.05, or 1.5%.

The plunge was caused by a CFTC order that settled charges against FXCM’s chief executive and managing director for engaging in fraudulent activities with respect to the firm’s retail customers.

Specifically, FXCM retail customers were told that there was no market maker, or liquidity provider, used in filling orders, when in fact orders were routed through a market maker.

The settlement for the National Futures Association charges bars the FXCM top managers from NFA membership and FXCM, which is paying a $7 million fine, will no longer be able to conduct business in the United States. FXCM’s U.S. operations are being sold to Gain Capital Holdings Inc.

The company focuses on trading activities with counterparties that include brokers and dealers and banks. It made headlines in January 2015, when the firm breached regulatory capital requirements following a spike in the Swiss franc after the Swiss National Bank removed its currency cap versus the euro.

The company was bailed out by Leucadia National Corp. that extended to FXCM a $300 million two-year secured term loan, which allowed FXCM to continue normal operations.

Zillow quiet before earnings

Zillow’s 2% convertible senior notes due 2021 traded flat to slightly higher at 103.2 during the session against shares that were up about 1% to 1.5%. But the shares dropped more than 6% in after-hours action after the close.

For its fourth quarter, Zillow revenue was $227.6 million, which was up 34% compared to the year-earlier period.

Meanwhile Zillow reported more than 140 million average monthly users visited its websites during the fourth quarter, which was up 13% from the year-earlier quarter.

Zillow shares ended the session up 25 cents, or 0.7%, at $36.87 and had been as high as $37.81 during the session.

Zillow priced $460 million of the 2% senior notes in December.

Mentioned in this article:

FXCM Inc. Nasdaq: FCM

Pandora Media Inc. Nasdaq: P

Priceline Group Inc. Nasdaq: PCLN

Tesla Inc. Nasdaq: TSLA

Zillow Inc. Nasdaq: Z

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.