Pinduoduo gains; Spirit Airlines rebound continues; high-grade convertible notes active

By Abigail W. Adams

Portland, Me., Nov. 28 – The convertibles primary market remained dormant on Tuesday with the lack of activity a continued surprise to many.

There are rumblings that deals are in the works and an active pipeline is anticipated through the final weeks of the year.

But with expectations for new deal volume consistently falling short throughout the year and the window of opportunity for dealmaking in 2023 narrowing, the level of primary market activity that will materialize is in question.

Meanwhile, the secondary space was active on Tuesday with the market remaining firm on a mixed day for equities.

The Dow Jones industrial average closed Tuesday up 84 points, or 0.24%, the S&P 500 index closed up 0.10%, the Nasdaq Composite index closed up 0.29% and the Russell 2000 index closed down 0.46%.

There was $108 million in reported convertible bond trading volume about one hour into the session and $520 million on the tape about one hour before the market close.

Buyers remained active in the space with on-the-run convertible notes well bid for and busted convertible notes in demand.

“Every busted name is rallying,” a source said. “Offers are scarce in that stuff.”

While volume was relatively light, Spirit Airlines Inc.’s 1% convertible notes due 2026 continued their remarkable recovery after heavy selling pressure earlier in the month.

Earnings-related news remained a driver of movement in the space with Pinduoduo Inc.’s 0% convertible notes due 2025 edging higher as equity soared after a large earnings beat.

High-grade names also continued to drive volume although with little movement in price.

Spirit Airlines rebounds

Spirit Airlines’ 1% convertible notes due 2026 continued their remarkable recovery on Tuesday.

The notes added 1.5 points outright with stock up another 5%.

The convertible notes traded as high as 62 in intraday activity.

They were marked at 61.875 versus a stock price of $14.22 in the late afternoon.

The yield was about 21.875%.

There was $6 million in reported volume.

“They’re the comeback kid,” a source said.

The notes do trade on a light hedge.

However, they have not captured the full move in stock, which has more than doubled over the past two weeks.

Spirit Airlines’ stock added to its strong gains on Tuesday and traded to a low of $13.36 and a high of $14.62 before closing the day at $14.29, an increase of 6.17%.

Stock is up more than 60% since hitting a 52-week low of $8.68 on Nov. 13.

The 1% convertible notes were trading in the low 40s during that time period.

Spirit Airlines saw heavy selling pressure early to mid-November as the antitrust trial to block JetBlue’s acquisition of the company commences.

While the trial continues, the recovery in the name seems to suggest market expectations for the outcome of the trial have changed and there is increased optimism surrounding the completion of the merger.

However, there was also a large seller in the name offloading their position in early November.

That selling pressure has since subsided.

Pinduoduo gains

Pinduoduo’s 0% convertible notes due Dec. 1, 2025 edged higher as its equity soared on the heels of a large earnings beat.

The 0% notes gained about 1 point outright to break par for the first time since 2021.

The notes were trading at 100.375 versus a stock price of $139.27 in the late afternoon, according to a market source.

There was $25 million in reported volume.

The Shanghai-based e-commerce company’s American Depositary Shares traded to a low of $133.10 and a high of $139.93 before closing at $139, an increase of 18.08%.

Equity soared after Pinduoduo reported a large earnings beat largely due to its new discount e-commerce site Temu.

Pinduoduo’s equity has exploded over the past six months with its ADS up 105%.

The 0% notes have long traded for their yield-to-put with the put date of Dec. 1, 2023 days away.

However, the notes have returned to balanced status due to the explosion in equity with the notes now trading with a negative yield of 0.125%.

High-grade trades

High-grade names continued to dominate the tape on Tuesday although with little movement in price.

Duke Energy Corp.’s 4.125% convertible notes due 2026 (Baa2/BBB), Southern Co.’s 3.875% convertible notes due 2025 (Baa2/BBB) and American Water Capital Corp.’s 3.625% exchangeable senior notes due 2026 (Baa1/A) were among the top traded names of the day.

Duke’s 4.125% convertible notes due 2026 were changing hands at 98.375 versus a stock price of $90.87 early in the session, according to a market source.

They were marked at 98.5 versus a stock price of $91.49 in the late afternoon.

There was $39 million in reported volume.

Duke’s stock traded to a low of $90.72 and a high of $91.93 before closing at $91.13, up 0.22%.

Southern Co.’s 3.875% convertible notes due 2025 were trading at 99.875 versus a stock price of $70.27 early in the session, a source said.

They remained wrapped around 99.875 in the late afternoon.

There was $15 million in reported volume.

Southern Co.’s stock traded to a low of $69.93 and a high of $71.15 before closing at $70.49, up 0.34%.

American Water’s 3.625% exchangeable notes due 2026 were trading at 99.5 versus a stock price of $131.19 in the late afternoon, according to a market source.

There was $25 million in reported volume.

American Water’s stock traded to a low of $129.98 and a high of $131.74 before closing at $130.66, a decrease of 0.069%.

Mentioned in this article:

American Water Works Co., Inc. NYSE: AWK

Duke Energy Corp. NYSE: DUK

Pinduoduo Inc. Nasdaq: PDD

Southern Co. NYSE: SO

Spirit Airlines Inc. NYSE: SAVE

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