Morning Commentary: Global Payments convertibles jump; Palo Alto, Zscaler up on hedge

By Abigail W. Adams

Portland, Me., Feb. 21 – The convertibles secondary space saw an active start to the day on Wednesday as the first new paper in almost two weeks made its aftermarket debut.

Global Payments Inc. priced $1.75 billion of seven-year convertible notes (Baa3/BBB-/BBB) after the market close on Tuesday.

The new paper hit the secondary space on another red open for equity markets with the Dow Jones industrial average down 77 points, or 0.21%, the S&P 500 index down 0.24%, the Nasdaq Composite index down 0.61% and the Russell 2000 index down 0.54% shortly before 11 a.m. ET.

However, Global Payments’ new convertible notes made large gains on an outright and dollar-neutral basis.

Outside of new paper, earnings continued to spark large movements in the space with Palo Alto Networks Inc.’s earnings sparking heavy selling in the cybersecurity sector.

Palo Alto’s deep-in-the-money 0.375% convertible notes due June 1, 2025 sank outright but improved on hedge as stock dropped almost 30% early in the session.

Zscaler Inc.’s 0.125% convertible notes due 2025 were also down outright but made large gains on hedge as stock took a hit in sympathy.

Global Payments jumps

Global Payments priced $1.75 billion of seven-year convertible notes (Baa3/BBB-/BBB) after the market close on Tuesday at par with a coupon of 1.5% and an initial conversion premium of 20%.

Pricing came at the rich end of talk for a coupon of 1.5% to 2% and at the midpoint of talk for an initial conversion premium of 17.5% to 22.5%, according to a market source.

The new paper played to strong demand from both outright and hedge accounts with the offering heavily oversubscribed.

The new 1.5% notes jumped to a 103-handle and were trading in the 103 to 103.5 context with stock up early in the session.

They expanded 2.5 to 3 points dollar-neutral.

Global Payments’ stock was changing hands at $132.23, an increase of 1.09%, shortly before 11 a.m. ET.

Cybersecurity crushed

The cybersecurity sector was taking a beating on Wednesday as Palo Alto’s weak guidance sparked heavy selling in the sector.

Palo Alto’s 0.375% convertible notes due June 1, 2025 tanked outright alongside stock but improved dollar-neutral.

The deep-in-the-money notes dropped 95 points outright with stock off almost 30%.

They were trading at 272.875 early in the session.

The notes gained about 0.5 point on hedge on the move down, a source said.

Palo Alto’s stock traded down to $270.24, a decrease of 26.18%, shortly before 11 a.m. ET.

Palo Alto reported an earnings beat with earnings per share of $1.46 versus analyst expectations for earnings of $1.30.

Revenue was $1.98 billion versus the $1.97 billion expected.

However, stock tanked after the company lowered its revenue guidance.

The company’s weak outlook shook the cybersecurity sector with stocks across the industry getting hammered.

Zscaler’s 0.125% convertible notes due 2025 were lower outright as stock marked its largest single-day decline since 2022.

The 0.125% notes were down 20 points outright with stock off almost 15% early in the session.

The notes were changing hands at 146 early in the session.

The notes expanded as much as 2 points on the move down, a source said.

Zscaler’s stock was trading at $211.20, a decrease of 15.19%, in intraday trading.

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