Illumina dominates in convertible bond trading; Snap improves; Zendesk active

By Abigail W. Adams

Portland, Me., June 27 – It was a relatively quiet day in the convertible bond secondary space on Monday with few notable price movements on a choppy day for equity markets.

Equity indexes wavered between gains and losses before closing the day mixed.

The Dow Jones industrial average closed the day down 62 points or 0.2%, the S&P 500 index closed down 0.3%, the Nasdaq Composite index closed down 0.72% and the Russell 2000 index closed up 0.34%.

Trading volume was thin for the majority of the session with $373 million on the tape about one hour before the market close.

However, activity picked up late in the day with volume jumping to $638 million by the end of the session.

The market appeared to be in a consolidation phase with few names seeing notable price movements, a source said.

Illumina Inc.’s 0% convertible notes due Aug. 18, 2023 (BBB) dominated the tape on Monday with the notes switching hands as they approach their maturity.

Zendesk Inc.’s convertible notes continued to see heavy volume although with little movement in price.

Snap Inc.’s 0.125% convertible notes due 2028 continued to improve on Monday after hitting an all-time low the previous week.

Illumina dominates

Illumina’s 0% convertible notes due Aug. 18, 2023 (BBB) dominated the tape on Monday with the notes switching hands as they approach their maturity.

The 0% notes were down about 0.5 point outright to trade at 95.25 early in the session.

They were wrapped around 95.5 in the late afternoon.

The high-premium, short-duration notes were offering an attractive yield of 4.3%, a source said.

There was a large outright seller in the name and plenty of buyers, a source said.

The notes had more than $40 million in reported volume during Monday’s session.

The notes were, at one point in time, in-the-money.

They traded as high as 137 in February 2021 with stock at its peak.

However, some sources saw the notes as rich when they still had some call optionality.

The notes have cheapened dramatically over the past two months with the notes falling below par in early May.

While no longer equity-sensitive, the investment-grade notes were offering an attractive yield.

“A lot of money was made on these bonds,” a source said.

Zendesk active

Zendesk’s convertible notes continued to be heavily traded during Monday’s session in the wake of news the company would be taken private.

While active, there was little movement in price.

Zendesk’s 0.625% convertible notes due 2025 continued to trade on a 97-handle.

There was $20 million in reported volume.

The notes were trading with an air of uncertainty over whether the takeover would go through, a source said.

The takeover would trigger a par change-of-control put.

“That would be a quick 2.5 points turnaround if it goes through,” a source said.

Zendesk’s 0.25% convertible notes due 2023 were changing hands between 119 and 120 throughout Monday’s session.

There was $12 million in reported volume.

Zendesk stock traded to a high of $75.06 and a low of $74.15 before closing the day at $74.65, an increase of 0.65%.

The notes dominated activity on Friday following news the long-speculated and debated takeover of the company had transpired.

Zendesk announced it had entered into a definitive agreement with Permira and Hellman & Friedman LLC to be acquired in an all-cash transaction that values the company at $10.2 billion.

Under the terms of the agreement, shareholders will receive $77.50 per share, representing a 34% premium over the company’s closing stock price on June 23, according to a company news release.

The deal is expected to close in the fourth quarter.

The news was a boon for outright holders of the notes with the 0.625% notes jumping 5 points outright and the 0.25% convertible notes jumping 10 points outright.

However, hedge players saw their positions crushed by the move with the 0.25% notes contracting 5 points dollar-neutral during Friday’s session.

While contracted, the 0.625% convertible notes held up better on hedge and were down 0.25 to 0.5 point on swap.

Snap improves

Snap’s 0.125% convertible notes due 2028 continued to see nominal improvement after hitting an all-time low the previous week.

The 0.125% notes rose 1 point outright in heavy volume.

The notes were changing hands just shy of 71.625 versus a stock price of $14.59 heading into the market close, according to a market source.

The notes were carrying a yield of 6.124%.

There was $20 million in reported volume.

Snap stock traded to a high of $15.28 and a low of $14.38 before closing the day at $14.56, a decrease of 0.95%.

The 0.125% notes spent the previous week hovering near their all-time low of 68.

Mentioned in this article:

Illumina Inc. Nasdaq: ILMN

Snap Inc. NYSE: SNAP

Zendesk Inc. NYSE: ZEN

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