Virgin Galactic convertibles fall flat; BeautyHealth under pressure; Vroom hits new low

By Abigail W. Adams

Portland, Me., Jan. 14 – The first new deal of the year hit the convertibles secondary space on Friday as the volatility in equities continued.

Virgin Galactic Holdings Inc. priced $425 million of five-year convertible notes after the market close on Thursday.

The new paper dominated activity in the secondary space; however, it fell flat on an outright and dollar-neutral basis.

Outside of the new paper, trading activity was light as equities whipsawed between gains and losses.

There was $723 million in reported convertible bond trading at the market close, according to a market source.

While equity indexes were deep in the red in intraday activity, late-day buying pushed the S&P 500 index, Nasdaq Composite and Russell 2000 index into positive territory at the market close.

The Dow Jones industrial average closed the day down 202 points, or 0.56%.

However, the S&P 500 index closed the day up 0.08%, the Nasdaq Composite closed up 0.59% and the Russell 2000 index closed up 0.10%.

The 10-year Treasury yield resumed its climb on Friday, going as high as 1.795% before closing the day at 1.792%.

Earnings season officially began on Friday with the big banks delivering disappointing results and JPMorgan CEO Jamie Dimon’s projection of six or seven rate hikes in the coming year rattling investors.

However, the badly beaten tech sector led the advance in equities with some sources speculating that short-covering before the long weekend drove the late-day recovery.

Despite the late-day surge in growth and tech stocks, convertible issuers continued to struggle.

Beauty Health Co.’s 1.25% convertible notes due 2026 were under pressure in high-volume activity.

While volume in the name was light, Vroom Inc.’s 0.75% convertible notes due 2026 again hit a new low.

Virgin Galactic flat

Virgin Galactic priced $425 million of five-year convertible notes after the market close on Thursday at par at the cheap end of talk with a coupon of 2.5% and an initial conversion premium of 27.5%.

Price talk was for a coupon of 2% to 2.5% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The deal became the latest offering to price off its 52-week low.

However, Virgin Galactic’s stock continued to trend lower at the market open and dragged the convertible notes down with it.

The convertible notes traded as low as 97 early in the session. However, they regained their footing alongside stock and closed the day flat on an outright basis.

The notes were changing hands at par versus a stock price of $10.13 heading into the close.

The notes were seen as flat to expanded about 0.125 point prior to the late-day surge in Virgin Galactic’s stock, sources said.

There was $90 million in reported volume during Friday’s session.

Virgin Galactic’s stock traded to a low of $9.75 in intraday activity before surging to a session high of $10.16 minutes before the close.

Stock closed Friday at $10.14, an increase of 1.2%.

BeautyHealth under pressure

BeautyHealth’s 1.25% convertible notes due 2026 were under pressure in active trading on Friday as stock continued its downward spiral.

The 1.25% notes sank almost 4 points outright with stock off more than 8%.

The notes were trading at 86.25 versus a stock price of $15.22 in the late afternoon.

They contracted about 0.5 point dollar-neutral, a source said.

There was $16 million in reported volume.

BeautyHealth’s stock traded to a high of $16.56 and a low of $14.79 before closing the day at $15.24, a decrease of 8.08%.

Stock has been on a downward spiral, falling more than 20% over the past three sessions.

Vroom’s new low

While volume in the name was light, Vroom’s 0.75% convertible notes due 2026 hit a new low with the notes firmly in distressed territory.

The 0.75% notes traded down to 57 during Friday’s session, a source said.

The notes now carry a yield of 14% with a duration of 4.5 years.

While Vroom’s notes now largely trade for their yield, the e-commerce platform for used vehicles’ stock continued to set new 52-week lows.

Vroom’s stock traded to a high of $8.68 and a new 52-week low of $7.69 before closing the day at $8.02.

Stock has now fallen about 80% since the company priced the $625 million issue at par in June 2021.

Mentioned in this article:

Beauty Health Co. Nasdaq: SKIN

Virgin Galactic Holdings Inc. NYSE: SPCE

Vroom Inc. Nasdaq: VRM

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