Convertibles secondary tone improves; travel names in focus; Avalara takeover talk eyed

By Abigail W. Adams

Portland, Me., July 7 – There was an uptick of activity in the convertibles secondary space on Thursday with buyers returning to the market on a strong day for equities.

Equity indexes made strong gains on Thursday as the market digested the latest jobs report and Federal Reserve June minute notes.

Inflation and recession continued to be the main focus of the market with views mixed about the severity of the economic downturn in store.

Small cap and tech stocks led gains in equities despite a 10-year Treasury yield that broke above 3% with the yield curve still inverted.

Several market players expressed the belief that equities may have found their floor with indexes poised to end the first trading week of the second half of 2022 with gains.

However, the bond market may be a different story, sources said.

The Dow Jones industrial average closed Thursday up 639 points, or 1.66%, the S&P 500 index closed up 1.5%, the Nasdaq Composite index closed up 2.28% and the Russell 2000 index closed up 2.43%.

There was $50 million in reported convertibles trading volume about one hour into the session and $546 million on the tape about one hour before the market close.

Travel names saw heavy volume on Thursday although with little movement in price.

Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB) were up alongside stock in heavy volume.

Expedia Inc.’s 0% convertibles due 2026 (Baa3/BBB-/BBB-) also improved in active trading.

JetBlue Airways Corp.’s 0.5% convertible notes due 2026 were active early in the session with the notes slightly weaker.

While Avalara Inc.’s 0.25% convertible notes due 2026 were not active during Thursday’s session, the tax software company’s stock skyrocketed on takeover speculation.

Travel names in focus

Several travel names were in focus on Thursday as investors placed their bets on the severity of the widely anticipated recession and its impact on travel and leisure activities.

Southwest Airlines’ 1.25% convertible notes due 2025 dominated the tape although with little movement in price.

The 1.25% convertible notes gained 1 point outright with stock up about 1%.

The notes were changing hands at 119.5 versus a stock price of $36.61 early in the session, according to a market source.

The notes were trading just shy of 120 versus a stock price of $36.90 in the late afternoon.

There was $38 million in reported volume.

Southwest’s stock traded to a low of $36.34 and a high of $37.10 before closing the day at $36.72, an increase of 1.13%.

Expedia’s 0% convertibles due 2026 improved in heavy volume.

The high-premium notes were up about 0.875 point outright.

They were seen at 90.875 versus a stock price of $96.53 in the late afternoon.

The yield on the notes was 2.674%.

There was $17.5 million in reported volume.

Expedia’s stock traded to a high of $97.09 and a low of $94.44 before closing the day at $96.70, an increase of 3.01%.

JetBlue’s 0.5% convertible notes due 2026 were active early in the session although activity in the name petered out as the session progressed.

The notes were weaker in the flurry of early morning trades.

The notes were down about 0.625 point outright.

They were changing hands at 72.375 with a yield of 9.48%.

There was $9 million in reported volume.

JetBlue’s stock traded to a low of $8.29 and a high of $8.48 before closing the day at $8.40, an increase of 1.08%.

The 0.5% notes have been on a 73-handle for much of July.

While JetBlue continues its attempt to outbid Frontier for Spirit Airlines, the convertibles market did not seem to be expressing an opinion on the attempted acquisition, a source said.

Avalara chatter

While Avalara’s 0.25% convertible notes due 2026 were not active on Thursday, the tax software company’s stock skyrocketed on market chatter about a potential acquisition.

Rumors were circulating on Thursday that Avalara had been approached with a takeout offer by private equity firm Vista Equity Partners, a source said.

The chatter caused Avalara’s stock to spike with stock jumping as high as $87.19 before closing the day at $85.63, an increase of 16.44%.

Avalara’s 0.25% convertible notes did not react to the news with the last round lot trade at 79 earlier in the week.

However, if the acquisition materializes, holders will make out on the par put, a source said.

Mentioned in this article:

Avalara Inc. NYSE: AVLR

Expedia Inc. Nasdaq: EXPE

JetBlue Airways Corp. Nasdaq: JBLU

Southwest Airlines Co. NYSE: LUV

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