American Water exchangeables rise; DISH convertibles improve; Peloton notes weaken

By Abigail W. Adams

Portland, Me., June 30 – The convertibles secondary space saw a quiet end to the week on Friday as activity continued to dwindle ahead of the July 4 holiday in the United States.

With the timing of the holiday on Tuesday, the stock market will see a rare half-day session on Monday, which is usually just enjoyed by fixed income asset classes, a source said.

Little occurred on Friday with even less expected for Monday.

“It’s a boring day,” a source said.

The lack of liquidity in the space comes amid continued macro data, which is painting a confusing portrait of the economy.

The Personal Consumption Expenditures report released pre-open Friday reflected cooling inflation with the annual core PCE of 4.6% coming in slightly below the 4.7% forecast.

Consumer spending also showed signs of decreasing, a reflection of weakening in the economy.

The data comes after the latest GDP print, which blew past analyst expectations by a large margin.

While the PCE report reflected some deceleration of inflation, debate remains about whether it is enough to deter the Federal Reserve from delivering more rate hikes in 2023.

However, risk assets responded favorably to the news with equities and credit seeing a strong session.

The Dow Jones industrial average closed Friday up 285 points, or 0.84%, the S&P 500 index closed up 1.23%, the Nasdaq Composite index closed up 1.45% and the Russell 2000 index closed up 0.44%.

However, recent issues and end-of-quarter clean-up kept some volume on the tape.

There was $54 million in reported convertibles trading volume about one hour into the session and $301 million on the tape in the late afternoon.

American Water Capital Corp.’s 3.625% exchangeable notes due 2026 (Baa1/A-) were again on the rise, recouping their losses from the previous session.

DISH Network Corp.’s convertible notes (B3/CCC-) were also on the rise with buyers returning to the badly battered name.

Peloton Interactive Inc.’s 0% convertible notes due 2026 were weaker in active trade.

American Water rises

American Water’s 3.625% exchangeable notes due 2026 recouped their losses from the previous session.

The notes gained about 0.5 point outright with stock up more than 1% and Treasuries largely flat.

The notes were changing hands at 100.75 versus a stock price of $142.22 in the late afternoon.

With $29 million in reported volume, the notes again ranked as the most actively traded issue in the secondary space.

American Water’s stock traded to a low of $140.21 and a high of $142.84 before closing at $142.73, an increase of 1.63%.

American Water’s 3.625% exchangeable notes were the sole issue of the week and the last of the second quarter.

The company was the latest high-grade utility company to tap the convertible market.

The notes added about 0.25 point dollar-neutral on their aftermarket debut on Tuesday but gave back their gains to trade flat on Thursday.

DISH stronger

DISH’s convertible notes were stronger on Friday with buyers returning for the badly battered issues.

DISH’s 0% convertible notes due 2025 were up about 1 point outright.

They were changing hands at 53.25 in the late afternoon with the yield 27.5%, according to a market source.

There was $8 million in reported volume.

The 3.375% convertible notes due 2026 traded up to 51 in the late afternoon with the yield about 28%.

The level was the highest for the notes since the early June sell-off sparked after DISH unveiled its wireless plan, a source said.

While not equity sensitive, DISH’s stock closed Friday at $6.59, a decrease of 1.49%.

Peloton weaker

Peloton’s 0% convertible notes due 2026 were weaker in active trade on Friday.

While activity petered out as the session progressed, the 0% notes were down about 0.75 point outright early in the session.

The notes traded down to 76 with the yield rising to 10.75%, according to a market source.

There was $5 million in reported volume.

While the long-busted convertible notes largely trade for their yield, Peloton’s stock closed Friday at $7.69, an increase of 3.08%.

The activity in the name was most likely connected to end-of-quarter activity, a source said.

Mentioned in this article:

American Water Works Co. Inc. NYSE: AWK

DISH Network Corp. Nasdaq: DISH

Peloton Interactive Inc. Nasdaq: PTON

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