Convertibles primary market quiet; Peloton ‘crushed’; Zillow, Lyft down outright

By Abigail W. Adams

Portland, Me., May 5 – The convertibles primary market remained closed on Wednesday with the first week of May poised to be another week with no new issuance.

Equities were mixed on Wednesday with the Dow Jones industrial average broaching an all-time high while the tech-heavy Nasdaq closed the day with losses after a late session sell-off pushed the index into negative territory.

The transition into value stocks from growth stocks, which was pointed to as a potential liability for the convertibles market, is in full effect, sources said.

The tight pricing that opportunistic issuers previously flocked to the convertibles market to take advantage is no longer readily available, sources said.

The pullback in equities, widening pricing and earnings season blackout were all pointed to as causes for the slowdown in primary market activity.

With no new paper entering the secondary space, earnings and company specific news remained the driving force of trading activity.

Zillow Group Inc.’s 2.75% convertible notes due 2025 were active and trading off alongside stock following the online real estate marketplace’s earnings report.

Lyft Inc.’s 1.5% convertible notes due 2025 were also active and trading down following the ride sharing company’s earnings.

Peloton Interactive Inc.’s already struggling 0% convertible notes due 2026 were “crushed” on Wednesday after the company agreed to recall its treadmills.

In general, the No-Nos, or 0% convertible bonds that priced at par, in the convertibles’ universe remained under pressure with the bonds “optically not attractive” following the pullback in growth stocks, a source said.

“These are bull market products,” the source said.

Zillow’s earnings

Zillow’s 2.75% convertible notes due 2025 saw a fresh round of trading activity on Wednesday with the deep-in-the-money convertible notes trading off alongside stock following the online real estate marketplace’s earnings report.

The 2.75% convertible notes were changing hands at 190.25 about one hour after the opening bell.

They continued to trend lower as losses mounted for the company’s stock.

The notes were changing hands at 187.75 in the late afternoon.

However, the notes were largely moving in line dollar-neutral, a source said.

Zillow’s stock traded to a high of $126.28 and a low of $113.40 before closing the day at $115.26, a decrease of 6.9%.

While Zillow beat on both the top and bottom lines in its first-quarter earnings report, stock traded off on weak guidance.

Zillow reported earnings per share of 47 cents versus analyst expectations for earnings per share of 26 cents.

The company also reported revenue of $1.2 billion versus analyst expectations for revenue of $1.1 billion.

Lyft’s earnings

Lyft’s 1.5% convertible notes due 2025 were active with the notes moving lower following the ride sharing company’s earnings.

The notes dropped about 9 points outright with stock off more than 6%.

They were changing hands at 155 bid, 155.5 offered in the late afternoon, a source said.

While lower on an outright basis, the high-dollar price convertibles were moving in line with stock.

Lyft’s stock traded to a high of $57.60 and a low of $52 before closing the day at $52.63, a decrease of 6.34%.

Lyft reported a loss of 35 cents per share versus analyst expectations for a loss of 53 cents. Revenue of $609 million also beat expectations for revenue of $559 million.

However, in keeping with a recent trend, Lyft’s stock sold off despite an earnings beat.

In addition to earnings, the Biden administration announced on Wednesday that it was reversing a Trump administration rule that made it easy for companies such as Lyft to classify employees as independent contractors instead of employees.

Lyft and competitor Uber have bitterly fought efforts that would force the companies to classify their drivers as employees.

The companies banded together and spent more than $200 million in the November election in California to support a ballot initiative that overrode a state law requiring the companies to classify drivers as employees.

Peloton ‘crushed’

The sell-off in Peloton’s 0% convertible notes due 2026 accelerated on Wednesday with the notes “crushed,” after the company announced it was recalling its treadmills, a source said.

The 0% convertible notes traded down 2 points outright with stock down more than 14%.

They were down to 87 bid, 88 offered in the late afternoon.

The notes, which move on a light delta, contracted “at least” 0.5 point dollar-neutral, a source said.

Peloton’s stock traded to a high of $98.80 and a low of $81.41 before closing the day at $82.62, a decrease of 14.56%.

Stock tanked after the company’s CEO capitulated and recalled the company’s treadmills after his previous refusal to do so.

The company issued a voluntary recall of its Tread and Tread+ products on Wednesday, which affects 125,000 Tread+ machines and 1,050 Tread products, CNBC reported.

The recall was urged by the Consumer Product Safety Commission in late April.

However, Peloton’s CEO initially pushed back against the commission’s safety warning, claiming the product was safe if used as directed.

Peloton is scheduled to report earnings after the market close on Thursday.

Mentioned in this article:

Lyft Inc. Nasdaq: LYFT

Peloton Interactive Inc. Nasdaq: PTON

Zillow Group Inc. Nasdaq: Z

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.