Morning Commentary: Convertible space quiet pre-holiday; Herbalife active; tech deals get attention

By Abigail W. Adams

Portland, Me., May 25 – The convertible space was quiet early in Friday’s session with focus shifting from the onslaught of new paper that has priced over the past two weeks to the Memorial Day weekend.

Herbalife Nutrition Ltd.’s 2.625% convertible notes due 2024 were the most active of the morning with about $5 million of the bonds traded, a market source said.

The 2.625% notes were down 4 points outright to trade at 101.5 with the stock down more than 9%. Herbalife shares tanked on news Icahn Enterprises is reducing its position in the company.

Carl Icahn issued a statement on Friday announcing his company had tendered 11.4 million shares in Herbalife’s tender offer. The shares will be repurchased for $52.50 a share, according to an Herbalife news release.

While Icahn’s position was reduced, his company remains Herbalife’s largest shareholder with 34.3 million shares, according to Icahn’s statement.

While trading activity surrounding the tech deals of 2018 was muted in the secondary space on Friday, convertible tech deals saw a different kind of spotlight with an article in the Wall Street Journal.

“We don’t get a write-up in the journal very often,” a market source said. “The amount of tech software convertible bonds issuances has been pretty amazing.”

Issuances from tech companies in the past six months have reached the highest volume since 2000, the height of the dot-com bubble, according to the article “Bull Market in Tech-Company Convertible Debt Rages On.”

The stars have been aligned for high volatility names, such as tech companies, to issue convertible notes, a market source said.

When stock is up, volatility is up and there is concern about interest rates and those factors converge, then “it’s a good time to issue a convertible,” the source said.

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