Convertibles secondary quiet amid volatility; high-grade notes active; Sarepta weakens

By Abigail W. Adams

Portland, Me., Sept. 27 – The convertibles primary market remained dormant as volatility continued to rock markets amid the latest Federal Reserve induced rout.

Prospects for new issuance in the coming week are low as accounts close the books on another brutal quarter and companies enter into the blackout period.

While new deals are expected before the end of the year, the convertibles market has seen negative net issuance of about $10 billion year to date, a source said.

The secondary space was equally quiet with few making moves in the final trading days of the third quarter.

Equities were volatile as Treasury yields continued to march to new heights with indexes once again launching firmly in the green only to succumb to selling pressure.

Indexes closed mixed after choppy intraday trade with the Dow Jones industrial average down 126 points, or 0.43%, the S&P 500 index down 0.21%, the Nasdaq Composite index up 0.25% and the Russell 2000 index up 0.40%.

There was $52 million on the tape about one hour into the session and $349 million in reported volume about one hour before the market close.

Investment-grade convertible notes were in focus with Illumina Inc.’s soon-to-mature 0% convertible notes due Aug. 18, 2023 (BBB) and Booking Holdings Inc.’s 0.75% convertible notes due 2025 (A3/A-) seeing heavy volume.

Sarepta Therapeutics Inc.’s 1.25% convertible notes due 2027 were also active with the notes coming in on an outright and dollar-neutral basis.

While weaker on Tuesday, Sarepta’s recent issue has managed to hold above par while several other recent deals have fallen well below.

ZTO Express’ 1.5% convertible notes due 2027 were active with the notes continuing to trade at their all-time low.

Investment-grade notes

Investment-grade convertible notes dominated the tape during an otherwise quiet session.

Booking Holdings’ 0.75% convertible notes due 2025 (A3/A-) were active although with little movement in price.

The 0.75% convertible notes traded as high as 122.5 with stock positive early in the session.

However, they were wrapped around 121 heading into the close.

There was $20 million in reported volume.

Booking’s stock traded to a high of $1,710.63 and a low of $1,655.39 before closing the day at $1,669.16.

Illumina’s soon-to-mature 0% convertible notes due 2023 also saw little change in heavy volume.

The notes were changing hands at 95.75 in the late afternoon with a yield of 5%, according to a market source.

There was $12 million in reported volume.

The notes are not equity sensitive and have long traded for their yield.

They have seen little movement in price even as short-duration Treasuries saw yields jump above 4%.

Short-duration notes with yields of 5% or more have been in demand recently, a source said.

Sarepta comes in

Sarepta’s 1.25% convertible notes were active on Tuesday with the notes weaker on an outright and dollar-neutral basis.

The notes launched the day unchanged outright but contracted dollar-neutral.

They were trading at 102.6 versus a stock price of $108.48 early in the session, according to a market source.

The notes fell about 0.625 point outright in the late afternoon despite stock holding onto its gains.

They traded at 102 versus a stock price of $108.10 in the mid-afternoon.

There was $8 million in reported volume.

Sarepta’s stock traded to a high of $109.94 and a low of $107.21 before closing the day at $108.33, an increase of 2.05%.

While lower on an outright and dollar-neutral basis, the $1 billion issue, which priced at par on Sept. 13, has held up well amid the most recent market downturn, a source said.

ZTO’s new low

ZTO’s 1.5% convertible notes due 2027 remained at their all-time low in active trading on Tuesday.

The 1.5% notes were seen at 96.875 versus an equity price of $24.52 in the late afternoon.

There was $8 million in reported volume.

ZTO’s American Depositary Shares traded to a high of $25.06 and a low of $24.45 before closing the day at $24.70, an increase of 0.75%.

While ZTO’s 1.5% notes have underperformed on a dollar-neutral basis since pricing in late August, they were performing well outright.

The notes traded as high as 105 as recently as Sept. 16. However, they sank below par in the market sell-off sparked by the Federal Open Market Committee announcement.

Mentioned in this article:

Booking Holdings Inc. Nasdaq: BKNG

Illumina Inc. Nasdaq: ILMN

Sarepta Therapeutics Inc. Nasdaq: SRPT

ZTO Express NYSE: ZTO

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