Airbnb convertibles gain; Affirm active on buyback; Akamai down outright, up on hedge

By Abigail W. Adams

Portland, Me., Feb. 15 – The convertibles primary market remained dormant on Wednesday with prospects dimming for new issuance before the week draws to a close.

The lack of a pipeline has been a surprise to sources with many expecting a much more active primary market at this point in earnings season.

Meanwhile, there was an uptick of activity in the convertibles secondary space with earnings and topical news driving activity in outstanding issues.

The market remained indecisive on Wednesday as investors continued to question the Federal Reserve’s future rate hike schedule.

While equity indexes opened with strong losses, they were lifted to positive territory by the session close with the Dow Jones industrial average up 39 points, or 0.11%, the S&P 500 index up 0.28%, the Nasdaq Composite index up 0.92% and the Russell 2000 index up 1.02%.

Airbnb Inc.’s 0% convertible notes due 2026 dominated activity in the secondary space with the notes improving outright as stock soared post-earnings.

Akamai Technologies Inc.’s 0.125% convertible notes due 2025 were down outright but up on swap as stock fell following earnings.

Affirm Holdings Inc.’s 0% convertible notes due 2026 continued their strong upward momentum in heavy volume as the company formally announced what many had speculated – a repurchase of a portion of the notes.

Avaya Holdings Corp.’s 2.25% convertible notes due June 15, 2023 were also active on the tape after the company filed for bankruptcy protection.

The notes now enter a new chapter in a story of alleged financial malfeasance with the company facing litigation for what plaintiffs describe as a “massive fraud” perpetrated to secure financing to refinance the notes.

Airbnb’s earnings

Airbnb’s 0% convertible notes due 2026 dominated activity in the secondary space on Wednesday with the notes gaining outright as stock soared following earnings.

The 0% notes, which had made steady gains heading into earnings, gained another 1 point outright to trade on an 88-handle.

The notes were changing hands at 88.375 versus a stock price of $134.29 early in the session, according to a market source.

They were seen at 88.5 versus a stock price of $138.04 in the late afternoon.

The yield was about 4%.

The notes mostly trade outright although some play them on a light delta of about 20%.

The notes were moving in line on a dollar-neutral basis.

There was $35 million in reported volume.

Airbnb’s stock traded to a low of $129.85 and a high of $138.75 before closing at $137.01, an increase of 13.35%.

Stock soared after a surprise earnings beat with the company reporting earnings per share of 48 cents versus the 33 cents expected and on revenue of $1.9 billion versus the $1.86 billion expected.

Akamai’s earnings

Akamai’s 0.125% convertible notes due 2025 were lower outright but up on swap as stock fell following earnings.

The 0.125% notes were off about 5 points outright with stock down almost 10%.

The convertibles were changing hands at 100.75 versus a stock price of $79.02 in the late afternoon, according to a market source.

There was $23 million in reported volume.

Akamai’s stock traded to a low of $78.32 and a high of $81.53 before closing at $78.66, down 10.41%.

Stock sank after the cybersecurity and cloud services company released earnings.

The company beat expectations with earnings per share of $1.37 versus analyst expectations for earnings per share of $1.26 on revenue of $927.78 million versus the $904.80 million expected.

However, stock fell as investors reacted to the company’s plan to build out its cloud computing segment.

Affirm’s buyback

Affirm’s 0% convertible notes due 2026 continued their strong upward momentum on Wednesday after the company announced a partial repurchase of the notes.

The 0% notes gained almost 2 points outright.

They were trading at 69.75 early in the session with the yield 9.875%.

The notes fell back as the session progressed to 69.375 in the late afternoon.

“Those popped,” a source said.

The notes were trading above the speculated price of the notes that were repurchased.

There was $18 million in reported volume.

Affirm’s stock also saw double digit gains on Wednesday.

Stock traded to a low of $13.05 and a high of $15.21 before closing at $14.70, up 12.21%.

Affirm announced on Tuesday that it had entered into privately negotiated transactions to repurchase $229 million in principal of the 0% notes for $158 million in cash.

The buyback price was believed to be 69.

Affirm’s notes traded as low as 62 the previous week on a disappointing earnings report.

However, the notes quickly eliminated their losses and were trading at their highest level in almost one year heading into Wednesday’s session on speculation the company would retire some of the notes.

Avaya active

Avaya’s 2.25% convertible notes due June 15, 2023 were active on Wednesday after the company announced it had filed for bankruptcy protection.

The 2.25% notes traded in a wide range of 4 to 7.5 in heavy volume.

The notes traded with a yield of over 6,000% early in the session. The yield was cut to 3,700% as the notes climbed.

They were trading on recovery expectations from the bankruptcy proceedings, sources said.

There was $14 million in reported volume.

Avaya’s 8% exchangeable notes due 2027 have been inactive with the last reported sales price more than two weeks ago at 34.5 bid, 35 offered, a source said.

The 8% exchangeable notes were issued as a private placement as part of a series of refinancing transactions undertaken to refinance the 2.25% notes.

Avaya is facing litigation for the financial picture of the company painted for investors to secure the financing in July 2022.

Avaya issued a going-concern statement a short time later.

Mentioned in this article:

Affirm Holdings Inc. Nasdaq: AFRM

Airbnb Inc. Nasdaq: ABNB

Akamai Technologies Inc. Nasdaq: AKAM

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