iQIYI gains on private placement; ZTO Express convertibles lower; Affirm down again

By Abigail W. Adams

Portland, Me., Aug. 30 – The convertibles secondary space saw a minor uptick of activity on Tuesday as equity markets extended their losses on renewed rate and recession concerns.

Following a strong open, indexes turned negative with the Dow Jones industrial average closing down 308 points, or 0.96%, the S&P 500 index closing down 1.10%, the Nasdaq Composite index closing down 1.12% and the Russell 2000 index closing down 1.45%.

There was $67 million on the tape about one hour into the session and $331 million in reported volume about one hour before the market close.

Topical news and end-of-month cleanup were the driving force of activity in the space.

iQIYI, Inc.’s convertible notes made large gains following news of a $500 million private placement, which was announced alongside the Beijing-based video streaming service’s earnings.

ZTO Express’ recently priced 1.5% convertible notes due 2027 fell outright and dollar-neutral in active trading.

Affirm Holdings Inc.’s 0% convertible notes due 2026 continued their downward slide following disappointing earnings late last week.

iQIYI in focus

iQIYI’s convertible notes made large gains in active trading on Tuesday following news of a $500 million private placement and earnings.

The Beijing-based streaming service’s convertible notes jumped 6 points outright as losses mounted for the company’s beleaguered equity.

The 2% convertible notes due 2025 rose 6 points outright.

They were changing hands at 89.75 versus a stock price of $3.56 in the late afternoon.

The yield on the notes was 21.621%.

They are putable on April 1, 2023.

There was $12 million in reported volume.

iQIYI’s 4% convertible notes due 2026 also rose 6 points outright.

The 4% notes were seen at 70.25 versus a stock price of $3.58 in the late afternoon.

The yield was about 24.3%.

The notes are putable on Aug. 1, 2024.

There was $10 million in reported volume.

The long-busted convertible notes do not trade with a theoretical delta with the conversion premium on the 2% notes about 550% and the 4% notes 750%.

While the notes have long been a yield play, some market players may still have them on hedge.

The notes would have made dollar-neutral gains with the company’s equity under pressure following earnings and the private placement of convertible notes, a source said.

iQIYI’s American Depositary Shares traded to a low of $3.52 and a high of $3.86 before closing the day at $3.55, a decrease of 9.67%.

iQIYI’s equity and convertible notes moved in opposite directions after the company announced mixed earnings.

iQIYI announced earnings per share of 10 cents versus analyst expectations for the company to break even.

Revenue was $6.66 billion versus the $6.7 billion analysts had expected.

iQIYI also announced that it had placed $500 million of 6% convertible notes with PAG Asia.

The news was a boon to the convertible notes, which largely trade based on investors’ faith in the company’s ability to pay them off.

iQIYI’s cash and cash equivalents were RMB 2.9 billion as of June 30, 2022; its outstanding convertible notes were RMB 5.99 billion, Prospect News reported.

ZTO comes in

ZTO’s recently priced 1.5% convertible notes due 2027 were coming in on an outright and dollar-neutral basis in active trade on Tuesday.

The convertibles were changing hands at 102.25 versus an equity price of $25.91 early in the session, according to a market source.

They traded down to 101.5 versus a stock price of $25.75 in the late afternoon.

The notes contracted on the move down, according to a market source.

There was $8 million in reported volume.

ZTO’s equity remained in the green on Tuesday despite the continued heaviness of the market.

The Shanghai-based express delivery company’s American Depositary Shares traded to a high of $26.50 and a low of $25.41 before closing the day at $25.51, an increase of 0.31%.

ZTO priced an $870 million issue of the 1.5% convertible notes at par on Aug. 24.

While the notes have held above par on an outright basis, they have underperformed on hedge with the notes now contracted since pricing.

Affirm lower

Affirm’s 0% convertible notes due 2026 continued their downward slide after disappointing earnings the previous week.

The 0% notes sank another 1 point to a 63-handle.

The notes were trading at 63.375 versus a stock price of $23.08 in the late afternoon, according to a market source. The yield on the notes was now 11.125%.

There was $8 million in reported volume.

Affirm’s stock traded to a high of $24.99 and a low of $22.79 before closing the day at $23.54, a decrease of 1.88%.

Stock continued to slide after the company announced disappointing earnings and guidance late last week.

Mentioned in this article:

Affirm Holdings Inc. Nasdaq: AFRM

iQIYI, Inc. Nasdaq: IQ

ZTO Express NYSE: ZTO

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