Investment-grade convertible bonds active; Beyond Meat notes trade higher

By Abigail W. Adams

Portland, Me., July 14 – The convertible primary market closed another week with no issuance with little expected for the week ahead as earnings season ramps up.

While dealmaking is expected to remain scarce during the earnings season quiet period, there remains a backlog of deals in the pipeline with August expected to be an active month.

Meanwhile, activity in the secondary space cooled as the rally in equities and Treasuries waned after logging strong weekly gains.

Equity indexes were mixed on Friday with the Dow Jones industrial average closing up 114 points, or 0.33%, the S&P 500 index closing down 0.10%, the Nasdaq Composite index closing down 0.18% and the Russell 2000 index closing down 1.05%.

While activity slowed in the broader market, investment-grade convertible notes remained active.

American Water Capital Corp.’s 3.625% exchangeable notes due 2026 (Baa1/A-), Welltower Inc.’s 2.75% convertible notes due 2028 (Baa1/BBB+) and CMS Energy Corp.’s 3.375% convertible notes due 2028 (Baa2) were active with the notes unchanged to slightly weaker in heavy volume.

While investment-grade notes performed well for certain holders as Treasury yields fell post-CPI, those playing the notes on a credit hedge got hurt in the move.

Outside of the high-grade stalwarts on Trace, the short-squeeze in heavily shorted names continued to move some previously illiquid issues, a source said.

Beyond Meat Inc.’s severely distressed 0% convertible notes due 2027 saw a meaningful move higher over the past week with the name attracting buyers as stock rallied.

Investment grade in focus

Investment-grade names continued to dominate the tape with the notes unchanged to slightly weaker in the heavy volume.

American Water’s 3.625% exchangeable notes continued to trade around 101.875 throughout the session, a source said.

There was $40 million in reported volume.

American Water’s stock traded to a low of $144.36 an da high of $146.46 before closing at $146.21, off 0.54%.

Welltower’s 2.75% convertible notes were down about 0.5 point outright.

The notes were changing hands in the 100.625 to 100.875 context throughout the session, according to a market source.

There was $15 million in reported volume.

Welltower’s stock traded to a low of $79.13 and a high of $80.32 before closing at $79.98, a decrease of 1.09%.

CMS Energy’s 3.375% convertible notes due 2028 were off about 0.125 point outright.

The notes were trading just shy of par early in the session.

There was $5 million in reported volume.

CMS’ stock traded to a low of $60.29 and a high of $61.06 before closing at $60.95, up 0.21%.

While down outright, the notes were largely moving in line to slightly weaker dollar-neutral.

Investment grade names performed well for some holders amid the rally in Treasuries post-CPI.

However, those who were playing the notes on a credit hedge took a hit on the move.

Beyond Meat gains

The past week saw movement in some previously frozen issues as the strong gains in some heavily shorted stocks attracted buyers to the convertible notes.

Beyond Meat’s severely distressed 0% convertible notes due 2027 were among the speculative names to take part in the broader theme in the market over the past week.

While not active on Friday as Beyond Meat’s stock gave back some gains, the 0% convertible notes saw a meaningful move higher on the week.

The 0% notes traded up 2 points with the market for the notes now 30 bid, 31 offered, a source said.

Beyond Meat’s stock traded to a high of $19.25 and a low of $16.75 before closing at $17.04, a decrease of 3.57%.

While down on Friday, the plant-based meat company’s stock added 16% over the past week.

Short interest in Beyond Meat’s stock stands at 41.45%.

Stocks with high short interest were among the best performers of the past week with short-covering in play.

Mentioned in this article:

American Water Works Co. Inc. NYSE: AWK

Beyond Meat Inc. Nasdaq: BYND

CMS Energy Corp. NYSE: CMS

Welltower Inc. NYSE: WELL

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