Uber, MicroStrategy convertibles expand; Southwest Airlines eyed; secondary active

By Abigail W. Adams

Portland, Me., Dec. 9 – Trading activity in the convertibles secondary space broached records on Wednesday with $1.2 billion in reported volume at market close, a source said.

While there has been above-average trading volume in the secondary space for the past two weeks, volume on Wednesday “must be setting a record,” a source said.

The trading activity was augmented by the $1.55 billion of new paper that flooded the secondary space after two deals priced post-close on Tuesday.

Uber Technologies Inc. priced a $1 billion offering of five-year convertible notes, and MicroStrategy Inc. sold an upsized $550 million of five-year convertible notes.

The deals were in demand during bookbuilding and saw large dollar-neutral expansions on their secondary market debut.

While the new paper was active, it accounted for only a portion of the overall trading volume during Wednesday’s session.

Outside of the new paper, Southwest Airlines Co.’s 1.25% convertibles due 2025 continued to see heavy volume with the notes slightly weaker.

Pinduoduo Inc.’s 0% convertible notes due 2025 were also active and contracting slightly in the high-volume activity.

Uber active

Uber priced $1 billion of five-year convertible notes after the market close on Tuesday at par with a coupon of 0% and an initial conversion premium of 52.5%.

Pricing came in line with tightened talk for a fixed coupon of 0% and at the rich end of tightened talk for a conversion premium of 50% to 52.5%, according to a market source.

Initial price talk was for a coupon of 0% to 0.25% and an initial conversion premium of 42.5% to 47.5%.

The notes were in demand in the aftermarket with the notes seeing a large dollar-neutral expansion.

The notes traded in a range of 102.5 to 104.5 on an outright basis with stock up more than 1% during Wednesday’s session.

The notes expanded 3 to 3.5 points dollar-neutral, sources said.

“They did well,” a source said.

Uber’s stock traded to a high of $56.02 and a low of $53.06 before closing the day at $53.79, an increase of 1.47%.

MicroStrategy expands

MicroStrategy priced an upsized $550 million of five-year convertible notes after the market close on Tuesday at par at the rich end of talk with a coupon of 0.75% and an initial conversion premium of 37.5%, according to a company news release.

Price talk was for a coupon of 0.75% to 1.25% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

The greenshoe was also upsized to $100 million.

The notes also skyrocketed in the aftermarket.

They traded up to 102.5 out of the gate and spent most of the session in a range of 102 to 103 on an outright basis, a source said.

The notes were posting gains even as stock continued to trade off following an analyst downgrade.

The notes were up 3.25 points dollar-neutral early in the session, a source said.

They expanded as much as 5 points dollar-neutral heading into the market close.

MicroStrategy’s stock traded to a high of $291.14 and a low of $274.09 before closing the day at $286.21, a decrease of 1.12%.

Stock was trading off after a Citigroup analyst downgraded the company’s stock to sell, citing the use of proceeds to buy Bitcoin as an aggressive move.

MicroStrategy plans to use proceeds from its convertible notes offering to buy Bitcoin. While unusual, the offering offered investors a way to play the digital currency while still providing some downside protection.

“This is how you play Bitcoin,” a source said.

Heavy volume

The convertibles secondary space continued to see heavy volume and broached records during Wednesday’s session.

Southwest Airlines’ 1.25% convertibles due 2025 topped the reported volume charts with $272 million on the tape in over 91 trades at the market close.

The notes were slightly weaker in the high-volume activity.

They were down about 2.5 points outright with stock off more than 3%.

The notes were changing hands at 144.625 versus an equity price of $45.82 at the market close.

Southwest Airlines’ stock traded to a high of $47.54 and a low of $45.25 before closing the day at $45.76, a decrease of 3.21%.

Pinduoduo’s 0% convertible notes due 2025 were also active although the notes contracted slightly as the company’s American Depositary Shares sold off.

The 0% notes were down 2.5 points outright with the company’s ADRs down about 6%.

They closed Wednesday’s session at 110.625.

The notes were contracted 0.25 point dollar-neutral, a source said.

Pinduoduo’s ADRs traded to a high of $163.10 and a low of $145.77 before closing the day at $147.57, a decrease of 6.3%.

There was more than $64 million in reported volume and 67 trades on the tape at the market close.

Mentioned in this article:

MicroStrategy Inc. Nasdaq: MSTR

Pinduoduo Inc. Nasdaq: PDD

Southwest Airlines Co. NYSE: LUV

Uber Technologies Inc. NYSE: UBER

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