Zynga convertible notes in focus on buyout; Lucid under pressure; Vail Resorts comes in

By Abigail W. Adams

Portland, Me., Jan. 10 – It was another whipsaw day in the convertibles secondary space on Monday as the rout in Treasuries continued to pressure risk assets.

While indexes were deep in the red at the start of the session with the Nasdaq Composite leading losses, they staged a rebound as the session progressed with dip-buying pushing the Nasdaq back into positive territory.

The Dow Jones industrial average closed the day down 163 points, or 0.45%, the S&P 500 index closed down 0.14% and the Russell 2000 closed down 0.66%.

However, the Nasdaq Composite closed the day up 0.05% after opening the day down more than 2%.

The 10-year Treasury yield continued to climb, breaking the 1.8% threshold and hitting as high as 1.809% before coming in to close the day at 1.766%.

There was about $80 million in reported volume one hour into the session and $500 million on the tape about one hour before the market close.

While equities pared their losses as Monday’s session progressed, the convertibles secondary space remained weak with selling pressure taking hold.

Outright accounts were driving the selling activity in the secondary space; however, hedge funds were also taking profits where they could, a source said.

While the pain continued in the convertibles secondary space, Zynga Inc.’s convertible notes were a bright spot following news the social video game company would be acquired.

The notes were making large gains on an outright and dollar-neutral basis.

Vail Resorts Inc.’s 0% convertible notes due 2026 were active with the notes down on an outright and dollar-neutral basis.

While Lucid Group Inc.’s 1.25% convertible notes due 2026 were holding above par on Monday, the notes continued to take a hit on a dollar-neutral basis.

Zynga’s acquisition

Zynga’s convertible notes were in focus and making large gains on an outright and dollar-neutral basis following news the company would be acquired.

Zynga’s 0% convertible bonds due 2026 jumped more than 10 points outright.

The bonds were changing hands at 101.375 early in the session.

However, they gave back some of their gains and were trading just north of par in the late afternoon.

The notes expanded a couple points dollar-neutral, a source said.

There was about $17 million in reported volume.

Zynga’s 0.25% convertible notes jumped about 10 points outright.

The 0.25% convertible notes were changing hands at 118.625 early in the session but came in to trade at 116.125 in the late afternoon.

There was about $14 million in reported volume.

Zynga’s stock traded to a high of $8.91 and a low of $8.38 before closing the day at $8.44, an increase of 40.67%.

Former convertible bond issuer Take-Two Interactive Software Inc. announced it would acquire Zynga in a cash and stock transaction with an enterprise value of $12.7 billion.

Take-Two will purchase Zynga shares for $9.86 with Zynga shareholders receiving $3.50 in cash and $6.36 in Take-Two stock, the Wall Street Journal reported.

The convertible bonds will be taken out in the transaction with the cash to stock ratio greater than 90%, a source said.

The notes were trading according to the take-out matrix. However, their value was fluctuating because of the fluctuation in Take-Two’s stock price.

Take-Two’s stock closed Monday at $142.99, a decrease of 13.13%.

Vail comes in

Vail Resorts’ 0% convertible notes due 2026 were down on an outright and dollar-neutral basis in active trading on Monday.

The 0% notes fell about 3 points outright with stock off more than 5% in intraday activity.

They were changing hands just north of 101.75 versus a stock price of $293 in the late afternoon.

The notes contracted about 0.5 to 0.75 point during Monday’s session, a source said.

There was $13 million in reported volume.

Vail Resorts’ stock traded to a low of $291.05 and a high of $304.26 before closing the day at $296.84, a decrease of 3.66%.

Lucid down again

Lucid’s 1.25% convertible notes due 2026 continued to struggle on Monday.

While the notes were holding above par, they continued to crater dollar-neutral.

The 1.25% notes were changing hands at 100.375 versus a stock price of $42 in the late afternoon.

The notes fell more than 1.625 point outright with stock down about 1% in intraday activity.

The notes contracted about 2 points dollar-neutral.

“They’re getting killed dollar-neutral,” a source said.

The borrow on the stock was becoming increasingly difficult, the source said.

Lucid’s stock traded to a low of $40.43 and a high of $43.17 before closing the day at $41.72, a decrease of 0.62%.

Mentioned in this article:

Lucid Group Inc. Nasdaq: LCID

Vail Resorts Inc. NYSE: MTN

Zynga Inc. Nasdaq: ZNGA

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