Morning Commentary: Datadog convertible notes surge; DISH destruction continues

By Abigail W. Adams

Portland, Me., Nov. 7 – While the convertibles primary market remained idle early Tuesday, the secondary space was active with earnings-related volatility continuing to spark outsized moves in outstanding issues.

Equity markets were again mixed early Tuesday with markets continuing to take a break from the post-Fed rally of late last week.

The Dow Jones industrial average was up 92 points, or 0.27%, the S&P 500 index was up 0.39%, the Nasdaq Composite index was up 0.93% and the Russell 2000 index was down 0.08% shortly before 11 a.m. ET.

There was $108 million in reported convertible bond trading volume about one hour into the session with DISH Network Corp.’s convertible notes (Caa2/CCC-) accounting for nearly ¼ of the total activity.

The destruction in DISH’s capital structure continued after the company’s abysmal earnings with market players questioning the ability of the company to pay off its soon-to-mature 2.375% convertible notes due March 15, 2024.

“That’s in four months,” a source said.

While DISH’s convertible notes continued to suffer, Datadog Inc.’s 0.125% convertible notes due 2025 surged outright alongside stock after a large earnings beat and raised guidance.

DISH drops further

DISH’s convertible notes remained under pressure in heavy volume early Tuesday as market players continued to question the company’s viability.

The satellite broadcaster’s 2.375% convertible notes due March 15, 2024 continued to plunge.

The notes sank another 2.5 points outright.

They were trading at 92.5 with a yield of 25.625% about one hour into the session.

There was $10 million in reported volume.

While the notes have taken a hit since DISH reported earnings, sources were surprised the trading level was in the 90s given the fundamentals of the company.

The 2.375% convertible notes have about $1 billion outstanding.

The company has about $1 billion on its balance sheet and $8 billion in looming maturities.

“There is no way they’re going to be able to pay this off,” a source said. “This should be trading for pennies.”

DISH’s 0% convertible notes due 2025 sank another 2 points outright to a 51-handle.

The notes were changing hands at 51.75 with a yield of 34% early in the session.

There was $10 million in reported volume.

The 3.375% convertible notes due 2026 were off about 0.5 point outright.

They were changing hands at 42.75 with a yield of 39% early in the session.

There was $4 million in reported volume.

DISH’s convertible notes are not equity sensitive.

However, stock recovered from its historic plummet the previous session and was trading at $3.60, an increase of 5.24%, shortly before 11 a.m. ET.

Datadog surges

Datadog’s 0.125% convertible notes due 2025 surged alongside stock after a large earnings beat.

The 0.125% notes jumped 16 points outright with stock up almost 30%.

The notes were trading at 125.5 versus a stock price of $102.66 early in the session, according to a market source.

There was $14 million in reported volume.

Datadog’s stock was trading at $102.58, an increase of 28.98%, shortly before 11 a.m. ET.

Stock surged after the cybersecurity company posted a large earnings beat.

Datadog reported earnings per share of 45 cents versus the 34 cents expected.

Revenue was $547.54 million versus the $524.2 million expected.

The company also surpassed expectations with its fourth-quarter guidance of $564 million to $568 million.

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