Convertibles see tame start to week, Intercept, Dish expand; Extra Space, Palo Alto active

By Abigail W. Adams

Portland, Me., Aug. 6 – The convertible secondary space saw a tame start to the week with $65 million on the tape early in Monday’s session and $235 million on the tape mid-afternoon.

Extra Space Storage LP’s 3.125% convertible notes due 2035 were volume leaders in the secondary space with $11 million bonds traded by late afternoon. The notes were up slightly on an outright basis.

Palo Alto Networks Inc.’s 0.75% convertible notes due 2023 tied Extra Space Storage at the top of the volume chart also with $11 million bonds on the tape.

The notes rose above par ahead of their addition to the Thomson Reuters convertible indexes after dropping to their lowest outright price last week.

Dish Network Corp.’s 3.375% convertible notes due 2026 were also volume leaders on Monday with the notes making gains both outright and dollar-neutral after large gains on Friday after an earnings beat.

Intercept Pharmaceuticals Inc.’s 3.25% convertible notes due 2023 were also among the most actively traded of the day with the notes improving on an outright and dollar-neutral basis as the stock shot up more than 12%.

Extra Space active

Extra Space’s 3.125% convertible notes due 2035 saw a slight outright gain in active trading on Monday. The notes were seen up about 1.875 point. They were trading at 110.8 versus an equity price of $92.92.

Extra Space stock closed Monday at $93.42, an increase of 1.32%.

The self-storage company reported second-quarter earnings last week with earnings matching analyst expectations.

While chief executive officer Joe Margolis predicted a slow down in new storage unit development on the earnings conference call, Extra Space Storage recently added a new property to its third-party management platform, lifting the number to 500, according to a company news release on Aug. 3.

The press release also announced storage unit trade publication Inside Self Storage named Extra Space the 2018 Best of Business winner and the company had been voted Best Third-Party Management Company for the seventh consecutive year.

Extra Space storage stock was on the decline post July 31 but rebounded on Aug. 3 after the press release.

Palo Alto above par

Palo Alto’s 0.75% convertible notes due 2023 were once more volume leaders on Monday with the notes seeing gains on an outright basis.

The notes were seen up a little more than 0.75 point outright. They were trading at 100.75 versus an equity price of $211.16.

Palo Alto stock closed Monday at $211.41, an increase of 2.15%.

The notes rose above par on Monday after dropping to their lowest outright price last week as tech sector stocks took a beating.

The notes traded down to the 97 range last Monday but have slowly worked their way back up as its stock has recovered.

Palo Alto’s 0.75% convertible notes will be added to the Thomson Reuters convertible indexes on Aug. 9.

Dish Network on the rise

Dish Network’s 3.375% convertible notes due 2023 were making gains on an outright and dollar-neutral basis on Monday after steady gains last week. The notes were up about 2.5 points outright.

They were seen trading at 96.5 versus an equity price of $36.41.

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

Dish stock closed Monday at $36.2, an increase of 5.85%.

Dish’s stock and convertible notes have been on the rise since the company reported second-quarter earnings prior to the market open Friday.

The convertible notes jumped more than 4 points on Friday to 92 from 88, a market source said.

The 3.375% convertible notes were under pressure in late April and early May but have since recovered their losses.

The company’s second-quarter earnings revealed “the end is not near,” the source said. The company beat analyst expectations with earnings per share of 83 cents versus analyst expectations for earnings per share of 71 cents.

The company also lost fewer subscribers than expected in the second-quarter. “They aren’t bleeding as many customers in the cable space as people thought,” a market source said.

Intercept gains

While slow to trade early in the session, Intercept Pharmaceutical’s 3.25% convertible notes due 2023 gained both outright and dollar-neutral in active trading on Monday.

In one $1 million trade early in the session, the notes were up 4 points outright to 92 versus an equity price of $110, a market source said.

They continued to climb in active trading and were seen changing hands at 94.8 versus an equity price of $110.82 in the afternoon with $10 million of the bonds on the tape.

While the notes may have “lagged a little on the move up” in the morning, they were seen expanded in the afternoon.

The majority of holders of the notes are outright accounts, sources said. However, several of the trades during Monday’s session were done on swap, a market source said.

With a delta of about 50%, the notes were seen expanded about 0.5 point in the afternoon. Intercept stock closed Monday at $114.64, an increase of 17.87%.

With a conversion price of $198.58, the notes still have a decent premium, a source said.

Intercept’s stock has been on the rise since Friday after the company reported second-quarter earnings.

Intercept beat analyst expectations with a loss per share of $2.58 versus analyst expectations for a net loss of $2.83.

Intercept’s sales of Ocaliva were on the rise in the second-quarter, reaching $43.2 million from $35.2 million in the first quarter.

Goldman Sachs recently upgraded Intercept stock to buy from sell saying the company had the edge in the market to treat a liver disease with Ocaliva.

Mentioned in this article:

Dish Network Corp. Nasdaq: DISH

Extra Space Storage LP NYSE: EXR

Intercept Pharmaceuticals Inc. Nasdaq: ICPT

Palo Alto Networks Inc. NYSE: PANW

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