Investment-grade convertible notes dominate quiet trading session; Middleby active

By Abigail W. Adams

Portland, Me., May 31 – The convertibles primary market was dormant on Wednesday with no new deal activity expected before the holiday-truncated week draws to a close.

With all eyes on the U.S. debt-limit deal that is operating on a razor-thin deadline for passage, equity-linked capital raises are not expected.

The last deal to clear the primary market, Tilray Brands, Inc.’s 5.2% convertible notes due 2027, has not been active in the secondary market since pricing.

With Tilray’s stock down more than 30% since the deal priced on May 25, hedge holders may be hanging onto the notes, which were hedged at pricing against a stock lending facility, a source said.

With no new paper to stimulate activity in the secondary space, the investment-grade convertible bond issues of 2023 and end-of-month cleanup were the drivers of activity in the space.

Equity indexes were in the red on Wednesday as the debt-limit deal heads to a vote in the House of Representatives and the latest JOLTS report, which reflected an unexpected surge in job vacancies, called into question the Fed’s next rate move.

The Dow Jones industrial average closed down 135 points, or 0.41%, the S&P 500 index closed down 0.61%, the Nasdaq Composite index closed down 0.63% and the Russell 2000 index closed down 1%.

There was $110 million of convertible bond trading activity on the tape about one hour into the session and $526 million on the tape about one hour before the market close.

The top five traded issues in the space were investment-grade names and accounted for nearly one-quarter of the total volume during the session.

Duke Energy Corp.’s 4.125% convertible notes due 2026 (Baa2/BBB), CMS Energy Corp.’s 3.375% convertible notes due 2028 (Baa2), PPL Corp.’s 2.875% exchangeable notes due 2028 (Baa1/BBB+), Welltower Inc.’s 2.75% convertible notes due 2028 (Baa1/BBB+) and FirstEnergy Corp.’s 4% convertible notes due 2026 improved outright on a strong day for the companies’ stocks.

Middleby Corp.’s 1% convertible notes due 2025 were also active with the notes lower alongside stock.

IG in focus

The investment-grade issues of 2023 dominated the tape on Wednesday with the notes improved on a strong day for the companies’ stocks.

While the notes improved outright, they all continued to trade below par.

Duke’s 4.125% convertible notes due 2026 gained 0.5 point outright with stock up a little more than 1%. They were changing hands at 98.875 early in the session and 99.125 in the late afternoon.

There was $53 million in reported volume.

Duke’s stock traded to a low of $87.91 and a high of $89.75 before closing at $89.30, up 1.45%.

CMS Energy’s 3.375% convertible notes due 2028 gained about 0.625 point outright with stock up almost 2%.

The notes were trading at 99 early in the session and rose to 99.5 by the late afternoon.

There was $34 in reported volume.

CMS’ stock traded between $57.03 and $58.20 before closing at $58, an increase of 1.93%.

PPL’s 2.875% convertible notes due 2028 rose about 0.25 point outright with stock up 0.5%.

The notes were seen at 96 early in the session and 96.25 in the late afternoon.

There was $17 million in reported volume.

PPL’s stock traded to a low of $25.92 and a high of $26.45 before closing at $26.20, a 0.42% gain.

Welltower’s 2.75% convertible notes due 2028 rose 0.5 point outright with stock up 2%.

The notes were trading at 98.375 in the late afternoon.

There was $26.5 million in reported volume.

Welltower’s stock traded between $73.25 and $74.84 before closing at $74.61 for a 2.02% gain.

FirstEnergy’s 4% convertible notes due 2026 gained 0.25 point outright with stock up 1%.

The notes were changing hands at 99.375 early in the session and 99.5 in the late afternoon.

There was $23 million in reported volume.

While FirstEnergy’s convertible notes are not rated, the company’s credit ratings are investment grade.

FirstEnergy’s stock traded to a low of $36.71 and a high of $37.54 before closing at $37.39, an increase of 1.05%.

Middleby active

Middleby’s 1% convertible notes due 2025 were active on Wednesday with the notes lower alongside stock.

The 1% notes fell 1.5 points outright with stock down more than 2%.

The convertibles were changing hands at 116.125 in the late afternoon.

There was $11.5 million in reported volume.

Middleby’s stock traded to a low of $130.90 and a high of $135.88 before closing at $132, down 2.38%.

Mentioned in this article:

CMS Energy Corp. NYSE: CMS

Duke Energy Corp. NYSE: DUK

FirstEnergy Corp. NYSE: FE

Middleby Corp. Nasdaq: MIDD

PPL Corp. NYSE: PPL

Tilray Brands, Inc. Nasdaq: TLRY

Welltower Inc. NYSE: WELL

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