Losses mount for Affirm; Sea, Huazhu Group, Pinduoduo under pressure; Splunk expands

By Abigail W. Adams

Portland, Me., March 14 – It was a quiet day in the convertibles secondary space as losses continued to mount for equity and credit markets.

Low-coupon convertible notes remained hard hit as bond yields skyrocketed in anticipation of the Federal Reserve’s Wednesday announcement regarding rate hikes.

The Dow Jones industrial average wavered between gains and losses before closing the day up 1 point.

However, the Nasdaq Composite closed the day down 2.04%, the S&P 500 index closed down 0.74% and the Russell 2000 index closed down 1.92%.

The 10-year Treasury yield climbed 145 basis points in a single session to close Monday at 2.144%.

Skyrocketing rates and widening credit spreads placed added pressure on convertible notes trading near their bond floor.

“The yield move is starting to hit on the credit side,” a source said.

Convertible notes in their 80s were lower on Monday.

“They’re not holding,” the source said. “The yield is too low.”

While selling pressure was increasing in the secondary space, volumes remained light with $340 million in reported volume about one hour before the market close.

Affirm Holdings Inc.’s 0% convertible notes due 2026 were the top traded name during Monday’s session with the notes continuing to hit new lows.

The ADR space remained in focus with Sea Ltd.’s 0.25% convertible notes due 2026 and Huazhu Group Ltd.’s 0.375% convertible notes due Nov. 1, 2022 down in active trading.

Pinduoduo Inc.’s 0% convertible notes due 2025 and iQIYI Inc.’s convertible notes also remained under pressure.

Splunk Inc.’s 1.125% convertible notes due 2025 were down outright but expanded dollar-neutral as stock dropped alongside broader markets.

Affirm’s new low

Affirm’s 0% convertible notes due 2026 continued their downward momentum as the 10-year Treasury yield hit new heights.

The 0% notes traded down 3.5 points outright with stock off more than 15%.

The notes were changing hands at 63.5 in the late afternoon, their lowest level since pricing.

The yield on the notes was now bordering on 10%, according to a market source.

There was $15 million in reported volume, making the notes the most active of Monday’s session.

Affirm’s stock again hit a new 52-week low on Monday.

Stock traded to a high of $29.85 and a low of $26.02 before closing the day at $26.22, a decrease of 15.04%.

The notes and stock have hit new lows during the past two sessions.

The ADR space

The ADR space was again under pressure in active trading on Monday as Asian markets saw a broad sell-off following continued geopolitical uncertainty, Beijing’s latest regulatory crackdown on the tech sector and renewed Covid-19 lockdowns.

While based in Singapore, e-commerce behemoth Sea’s 0.25% convertible notes due 2025 continued their downward trend alongside its equity.

The 0.25% convertible notes fell 2.25 points outright.

They were changing hands at 75.5 versus a stock price of $87.46 in the late afternoon.

There was $7 million in reported volume in the late afternoon.

Sea’s American Depositary Shares traded to a high of $94.11 and a low of $86.79 before closing the day at $87.80, a decrease of 3.56%.

The global consumer internet company’s equity has been on a steady downtrend alongside other growth stocks.

However, losses have accelerated over the past two weeks following a disappointing earnings report.

While equity has dropped more than 40% over the past month, the 0.25% convertible notes were holding relatively well.

However, the move in rates was adding further pressure to the notes, which currently yield 6.58%, sources said.

Huazhu Group’s short-duration 0.375% convertible notes due Nov. 1, 2022 were also down in active trading.

The 0.375% notes fell 3.5 points outright with the Shanghai-based hotel management company’s equity off about 15%.

The notes were changing hands at 91.25 versus an equity of $23.45 in the late afternoon.

There was $7 million in reported volume.

Huazhu’s ADS traded to a high of $25.33 and a low of $21.98 before closing the day at $22.28, a decrease of 18.18%.

Pinduoduo’s 0% convertible notes due 2025 fell another 3 points outright.

The 0% notes were changing hands at 82 versus an equity price of $26.33 in the late afternoon.

The notes were currently yielding 11.961%.

Pinduoduo’s ADS traded to a high of $30.83 and a low of $25.41 before closing the day at $25.53, a decrease of 20.54%.

iQIYI’s 4% convertible notes due 2026 fell 9 points outright to 56 with the yield now 18.238%.

iQIYI’s ADS traded to a high of $2.50 and a low of $2.04 before closing the day at $2.11, a decrease of 24.10%.

Pinduoduo’s and iQIYI’s convertible notes were under pressure the previous week as the Securities and Exchange Commission ramped up its delisting threat to China-based companies.

Beijing’s latest regulatory crackdown added further pressure to the convertible notes with Tencent Holdings Ltd. facing a record fine related to its mobile payments network, the Wall Street Journal reported.

China’s most recent lockdown to prevent a Covid-19 resurgence also sparked a broad sell-off in Asian markets with the Hang Seng index down about 5% on Monday.

Splunk expands

Splunk’s 1.125% convertible notes due 2025 improved on hedge as the notes dropped outright alongside stock.

The 1.125% notes were down about 6.5 points outright with stock off almost 10%.

The notes were changing hands at 105.5 in the late afternoon.

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

Splunk’s stock traded to a high of $121.67 and a low of $109.74 before closing the day at $110.22, a decrease of 9.78%.

Mentioned in this article:

Affirm Holdings Inc. Nasdaq: AFRM

Huazhu Group Ltd. Nasdaq: HTHT

iQIYI Inc. Nasdaq: IQ

Pinduoduo Inc. Nasdaq: PDD

Splunk Inc. Nasdaq: SPLK

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