DraftKings convertibles weaken; Norwegian Cruise gains; Asia-based issuers pare losses

By Abigail W. Adams

Portland, Me., Oct. 25 – The convertibles primary market remained dormant on Tuesday although hope remains for some new paper before the week is through.

Meanwhile, the secondary space continued to firm on Tuesday as a risk-on sentiment reignited in markets with Treasuries and equities rallying ahead of a heavy week of earnings.

The Dow Jones industrial average closed Tuesday up 337 points, or 1.07%, the S&P 500 index closed up 1.63%, the Nasdaq Composite index closed up 2.25% and the Russell 2000 index closed up 2.7%.

There was $400 million in reported volume about one hour before the market close with a wide breadth to the names on the tape.

DraftKings Inc.’s 0% convertible notes due 2028 was the most actively traded issue in the secondary space with the notes weaker as stock gained following an analyst upgrade.

NCL Corp. Ltd.’s 1.125% notes due 2027 exchangeable for Norwegian Cruise Line Holdings Ltd.’s stock were on the rise in active trading.

Some Asian names that were slaughtered in the previous session were on the rise amid Tuesday’s improved market sentiment.

ZTO Express’ 1.5% convertible notes due 2027 and Pinduoduo Inc.’s 0% convertible notes due 2025 pared their losses from Monday’s bloodletting.

Hello Group Inc.’s (formerly Momo Inc.) 1.25% convertible notes due 2025 were active although with little movement in price.

DraftKings weaker

DraftKings’ 0% convertible notes due 2028 were weaker in heavy volume despite a strong day for the company’s stock following an analyst upgrade.

The 0% convertible notes remained wrapped around 60.75 throughout the session with a yield of 9.5%.

There was $12 million in reported volume.

DraftKings’ stock traded to a low of $13.12 and a high of $14.16 before closing the day at $14.10, an increase of 7.88%.

Stock jumped after a CFRA analyst upgraded the stock to buy and set a $20 price target.

While a boost for the stock on Tuesday, DraftKings’ stock is down about 50% year to date with the conversion premium on the notes more than 550%.

There may have been a large outright seller in the market offloading its position, a source said.

Norwegian gains

Norwegian’s 1.125% exchangeable notes were on the rise in active trading.

The 1.125% notes gained 3 points outright with stock up 3%.

The notes were changing hands at 73 versus a stock price of $15.76 in the late afternoon.

There was $9.5 million in reported volume.

Norwegian’s stock traded to a low of $15.20 and a high of $15.84 before closing the day at $15.83, an increase of 3.36%.

Paring losses

Asian names remained in focus in the secondary space with several convertible notes paring their losses from Monday’s bloodletting.

ZTO’s 1.5% convertible notes due 2027 rose 2.5 points outright on Tuesday.

The 1.5% notes traded up to 83 early in the session but stood poised to close the day at 82.5.

There was $6 million on the tape.

ZTO’s equity traded to a low of $17.10 and a high of $18.06 before closing the day at $17.62, an increase of 4.88%.

The notes sank 11 points and contracted 3.5 points dollar-neutral on Monday amid a fire-sale in the ADR space following the results of China’s Communist Party Congress.

Pinduoduo 0% convertible notes due 2025 gained 1 point dollar-neutral on Tuesday.

The notes were changing hands at 89.625 versus an equity price of $47.49 in the late afternoon with a yield of about 10.25%.

There was $8 million in reported volume.

Pinduoduo’s equity traded to a high of $49.65 and a low of $45.82 before closing the day at $47.53, an increase of 6.91%.

The notes contracted 4 points dollar-neutral on Monday.

Hello Group’s 1.25% convertible notes due 2025 were active although with little movement in price.

The 1.25% convertible notes remained wrapped around 92.75 with the yield 12.75%.

There was $9 million in reported volume.

Pinduoduo’s 0% convertible notes are putable at par on Dec. 1, 2023, and Hello Group’s 1.25% convertible notes due 2025 are putable at par on July 1, 2023.

The par put on the notes make them an attractive yield play for market players willing to take on the risk of any uncertainty whether the China-domiciled companies will honor them.

There was a fire sale in the ADR space on Monday after president Xi Jinping surrounded himself with hardliners, promising Beijing a firmer grip on markets and more geopolitical uncertainty.

Mentioned in this article:

DraftKings Inc. Nasdaq: DKNG

Hello Group Inc. Nasdaq: MOMO

NCL Corp. Ltd. NYSE: NCLH

Pinduoduo Inc. Nasdaq: PDD

ZTO Express NYSE: ZTO

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