CenterPoint Energy convertibles trade at issue; Splunk notes in focus; Chegg declines

By Abigail W. Adams

Portland, Me., Sept. 27 – The convertibles secondary market was quiet on Thursday with the recent deals to enter the space occupying the majority of trading activity.

CenterPoint Energy Inc.’s 7% three-year series B mandatory convertible preferred stock sold as $50-par depositary shares saw light trading volume compared to their market debut on Wednesday with the notes trading at issue.

Splunk Inc.’s 0.5% convertible notes due 2023 and 1.125% convertible notes due 2025 returned to focus in the secondary space on Thursday with both notes volume leaders as they joined the Thomson Reuters convertibles indices.

Chegg Inc.’s 0.25% convertible notes due 2023 continued their decline with the notes again down on an outright basis after the company reported a data breach on Wednesday.

MercadoLibre Inc.’s 2% convertible notes due 2028 also saw a fresh round of activity with the notes improving outright after an analyst upgrade.

While Wednesday’s Federal Reserve rate hike may have dampened new issue activity over the past week, the Fed’s dot plot will stimulate activity in the near future, sources said.

Any company with the ability to issue a convertible bond with a coupon under 1% will be looking to tap the market sooner rather than later, a source said.

CenterPoint at issue

Trading of CenterPoint Energy’s depositary shares representing a 1/20th interest in its 7% series B mandatory convertible preferred stock due 2021 paled in comparison to their market debut on Wednesday.

However, the shares remained active and were largely stuck at their $50.00 issue price.

They were seen at $49.875 bid, $50.125 offered versus a stock price of $27.25 early in the session, according to a market source.

While there was a brief spike, they continued to hover around $50.00 in the afternoon, sources said.

“They keep trying to expand,” a market source said. However, the notes were largely flat on a dollar-neutral basis on Thursday.

The depositary shares were volatile on their market debut on Wednesday. They traded, at times, north of $51.00 but closed the day below issue price at $49.90.

However, the average trading price for the depositary shares during Wednesday’s session was around $50.25, a market source said.

While the notes were expanded as much as 0.5 point during Wednesday’s session, they quickly came in and closed the day flat.

Mandatory convertible preferred stock typically prices 1 to 2 points cheap. However, CenterPoint’s deal came at fair value, a market source said.

The lack of cheapness of the deal was pointed to as the reason the shares were hovering around their issue price in secondary trading.

Splunk trades in line

Splunk’s 0.5% convertible notes due 2023 and 1.125% convertible notes due 2025 returned to focus in the secondary space with the notes the major volume movers among convertible bonds.

The 1.125% convertible notes due 2025 were seen trading at 101.75 versus an equity price of $119.09 on Thursday.

More than $19 million of the bonds were on the tape by late afternoon.

The 0.5% convertible notes changed hands at 101.78 versus a stock price of $118.16. With $26 million on the tape by late afternoon, the bonds were the most active of the day.

While up slightly outright, the notes were largely moving in line on a dollar-neutral basis, a market source said.

Splunk stock closed Thursday at $118.50, an increase of 0.89%.

The activity surrounding the notes came as they were added to the Thomson Reuters convertible indices on Thursday.

Index additions tend to spur trading activity with more buyers for the bonds, a market source said.

Chegg down again

Chegg’s 0.25% convertible notes due 2023 continued to trade down on an outright basis with stock again off after the company reported a data breach that compromised user data.

The 0.25% notes were down another 3 to 3.5 points outright on Thursday. They were seen trading at 116.9 versus an equity price of $26.64.

About $13 million of the bonds were on the tape by late afternoon.

Chegg stock closed Thursday at $28.08, a decrease of 1.2%.

While the notes held dollar-neutral, they dropped about 11 points outright on Wednesday with stock down more than 12%.

The convertible notes and stock took a hit on Wednesday after the education technology company announced that it was in the process of notifying up to 40 million users about a security breach that compromised their data.

MercadoLibre upgraded

MercadoLibre’s 2% convertible notes due 2028 were gaining steam on an outright basis on Thursday after analysts upgraded the Buenos Aires-based e-commerce company’s stock.

The 2% notes were up a little more than 2 points outright to trade at 98.75 versus an equity price of $341.65.

MercadoLibre stock closed Thursday at $340.08, an increase of 2.82%.

The company’s equity was upgraded by UBS analysts to “outperform” from “neutral” on Thursday.

MercadoLibre’s convertible notes and stock took a hit in late August/early September after Argentina’s currency experienced a sell-off.

While the notes were as high as 106 prior to the drop in the Argentinean peso, they have traded below par since.

The 2% notes were trading on a 94 handle earlier in the week.

The sell-off in the Argentinean Peso was sparked after president Mauricio Macri asked the International Monetary Fund for the early release of a bailout package.

On Wednesday, the IMF increased the size of its bailout to Argentina to $57.4 billion from $50 billion.

Mentioned in this article:

CenterPoint Energy Inc. NYSE: CNP

Chegg Inc. NYSE: CHGG

MercadoLibre Inc. Nasdaq: MELI

Splunk Inc. Nasdaq: SPLK

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