Convertibles trading light; Palo Alto, Twitter eyed; Intelsat jumps again; Sempra up

By Abigail W. Adams

Portland, Me., July 12 – Light trading volume returned to the convertibles space with the frenzy surrounding new paper over the past week quieting down.

There was about $40 million on the tape early in the session and $256 million on the tape by late afternoon, sources said.

Palo Alto Networks Inc.’s newly priced 0.75% convertible notes due 2023 and Twitter Inc.’s 0.25% convertible notes due 2024 remained in focus. While both saw gains on an outright basis, they were largely trading in line dollar-neutral, sources said.

Momo Inc.’s 1.25% convertible notes due 2025 also saw some action during Thursday’s session with the notes gaining outright but getting weaker dollar-neutral, a source said.

While trading activity surrounding Sempra Energy’s newly priced 6.75% series B mandatory convertible preferreds due 2021 slowed on Thursday, the notes continued to make gains.

Trading volume was also light for Intelsat SA’s 4.5% convertible notes due 2025. However, the notes jumped 9 points outright as stock climbed as much as 13% on Thursday.

Teradyne Inc.’s 1.25% convertible notes due 2023 appeared to be active on the tape, but most trades were affiliate or dealer related and were most likely the result of the moving of accounts, a market source said.

The notes were unchanged on the day.

Names in focus

Palo Alto’s 0.75% convertible notes due 2023 and Twitter’s 0.25% convertible notes due 2024 continued to dominate trading activity in the secondary space on a day some described as a “snoozer.”

Palo Alto’s 0.75% convertible notes climbed about 1 point outright to trade up to 102.5 with stock up about $5 on Thursday.

The notes were trading in line to up about 0.25 point dollar-neutral, a market source.

Palo Alto stock closed Thursday at $218.32, an increase of 2.6%.

The notes were again the top volume movers in the secondary space with about $23 million on the tape shortly before the market close.

Twitter’s 0.25% convertible notes due 2024 also saw gains on an outright basis during Thursday’s session.

The notes were up about 1.5 points outright to trade north of 105 with stock up more than 2%. They were largely moving in line dollar-neutral, a market source said.

Twitter stock closed Thursday at $45.26, an increase of 3.17%.

About $11 million of the bonds were on the tape by late in Thursday’s session.

Momo up outright

Momo’s 1.25% convertible notes due 2023 also saw some action on Thursday with the notes climbing 1 to 1.5 points outright as stock climbed more than 3%.

While the notes traded as high as 99, they were seen weaker on a dollar-neutral basis.

The notes have contracted 1.5 points to 2 points dollar-neutral since they hit the market on June 25. The weakness of the notes was attributed to the credit spread people are using in their valuations.

“People are making credit assumptions that are wider than the ones they came with,” a market source said.

The deal was marketed with a credit spread of 300 bps over Libor, although some sources pegged the deal with a credit spread of 400 bps.

The Beijing-based mobile social networking platform’s books looked good and the credit spread would probably be 150 bps over Libor if it was a U.S.-based corporation, a market source previously said.

The market debut of the 1.25% convertible notes was rocked after Spruce Point Capital Management released a report alleging numerous financial improprieties on the part of the company.

The notes and company stock tanked as a result, but stock has slowly inched back up after the company denied the allegations.

Momo stock closed Thursday at $45.38, an increase of 3.14%. Momo stock was $45.34 when the convertible notes priced.

Sempra improves

Sempra Energy’s newly priced 6.75% series B mandatory convertible preferreds due 2021 continued to improve their second day in the market.

The preferreds traded up to $101.85 early in Thursday’s session, an increase of about 52 cents.

The notes dipped and spiked during Thursday’s session, trading as low as 101 and as high as 102 before closing the day at 101.89, an increase of 59 cents, or 0.58%.

While Sempra’s series B mandatory convertible preferreds improved, Sempra common stock was unchanged to down slightly.

Sempra stock closed Thursday at $115.63, a decrease of 0.04%.

The series B mandatory convertible preferreds were priced off of a concurrent common stock offering that was sold in a forward sales agreement with an initial offering price of $113.75.

Sempra’s 6% series A mandatory convertible preferreds due 2021 were down slightly, closing Thursday at $102.37, a decrease of 10 cents or 0.1%.

Intelsat jumps

Intelsat’s 4.5% convertible notes due 2025 jumped more than 9 points outright as the stock skyrocketed on Thursday after regulators approved a plan to open the C-band to 5G signals.

The 4.5% convertible notes closed Thursday at 135.76 after closing Wednesday at 126.45.

Intelsat stock closed Thursday at $19.62, an increase of 12.5%. The 4.5% convertible notes have been one of 2018’s top performers with the notes in-the-money a little more than one week after they priced on June 11.

Intelsat stock has been on the rise over the past two months amid speculation that approval was near for its proposal to use the C-band, which is currently used for satellite television broadcasts, to introduce 5G to the United States.

The Federal Communications Commission unanimously approved the proposal on Thursday.

Teradyne active

While Teradyne’s 1.25% notes appeared active on the tape, the activity was more about the shifting of accounts than the movement of the bonds, a market source said.

The notes were seen trading between 136.25 and 136.842 during Thursday’s session, according to Trace data.

Some trades were from affiliates, some were from dealers, but the activity did little to change the valuation of the notes.

Teradyne stock closed Thursday at $39.75, an increase of 2.26%. “They look to be pretty much unchanged on the day,” the source said.

Mentioned in this article:

Intelsat SA NYSE: I

Momo Inc. Nasdaq: MOMO

Palo Alto Networks Inc. NYSE: PANW

Sempra Energy NYSE: SRE

Teradyne Inc. NYSE: TER

Twitter Inc. NYSE: TWTR

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