Convertibles calm as equities sell off; Granite Point prices; Karyopharm stock plunges

By Rebecca Melvin

New York, Oct. 10 – U.S. convertibles were heavy but relatively steady amid a punishing sell-off in equities on Wednesday. Market activity among some hedged players was reduced to lightening up on deltas, according to a New York-based market source.

“It’s a classic case of the convertibles market lagging the equity market,” the source said.

The convertibles space had two new deals in the market, which are on the small side. Granite Point Mortgage Trust Inc.’s $125 million of five-year convertible notes were new in the market after the deal priced at par post-close on Tuesday. The new notes have a 6.375% coupon and priced with a 10% initial conversion premium.

Karyopharm Therapeutics Inc.’s $150 million offering of seven-year convertible senior notes were expected to price after the market close on Wednesday, but information regarding whether it priced or not was unavailable as of Prospect News’ deadline, according to a syndicate source.

Karyopharm shares fell 20% on Wednesday, dropping $3.125 to $12.44 per share. The blistering fall puts pressure on a deal that was seen pricing at a coupon of between 2.5% to 3% and an initial conversion premium of between 25% to 30%.

In the broader markets, the CBOE volatility index spiked nearly 44% and U.S. stocks had their worst day since February, with the Dow Jones industrial average closing down 831 points, but the tech-heavy Nasdaq stock market doing even worse, closing down 4%, with selling continuing after hours.

The Trump administration weighed in on the sell-off, issuing a statement that touted the strong fundamentals of the U.S. economy and Trump policies that create “a solid base for continued growth.”

Among issues in trade that were relatively unscathed by the broader carnage were Teva Pharmaceutical Industries Ltd.’s mandatory and preferred shares. The Teva 7% mandatory convertibles that mature Dec. 15 were actually up on the day, closing up $1.94, or 0.5%, to $402.20. The issue outperformed Teva’s common shares, which in turn outperformed the broader indexes, closing down only 15 cents, or 0.7%, to $21.08 on the day.

Kinder Morgan Inc.’s 9.75% mandatory convertible, which went ex-dividend on Wednesday, were trading around parity. “The mandatory converts in a week or so, and just paid the dividend, so there were hedged traders,” a market source said.

Micron Technology Inc.’s 3% G series convertibles were also up, trading at parity plus 10 cents to parity plus 30 cents, from parity plus 5 cents.

Overall, there were no massive convertible sellers, the source said. The question remains whether the selling in equities continues or is considered overdone with buyers stepping in.

Several pundits thought that there was more to come as the market shifts in reaction to the economy changing to high growth and high yield from low growth and low yield. But others suggest the U.S. equity market is expensive and investors should reduce their exposure to it.

Mentioned in this article:

Granite Point Mortgage Trust Inc. Nasdaq: GPMT

Karyopharm Therapeutics Inc. Nasdaq: KPTI

Kinder Morgan Inc. NYSE: KMO

Micron Technology Inc. NYSE: MU

Teva Pharmaceutical Industries Ltd. NYSE: TEVA

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