Convertible primary remains dormant; secondary quiet; Square, ON Semiconductor gain post-earnings

By Abigail W. Adams

Portland, Me., Aug. 2 – The convertible primary market remained dormant on Monday extending the new issue draught that saw only one convertible bond deal price in July.

However, there are deals in the pipeline, sources said, and some activity is expected before the end of the week.

With the primary market dormant, trading activity in the convertible secondary space remained muted, despite continued volatility in equity markets.

There was $35 million in reported volume about one hour into the session and $263 million in reported volume about one hour before the market close.

While equity benchmarks started the day strong, selling activity took hold in the afternoon with benchmarks closing the day mixed.

The Dow Jones industrial average closed the day down 97 points or 0.28%, the S&P 500 index closed down 0.18%, the Nasdaq Composite held on to a 0.06% gain and the Russell 2000 index closed the day down 0.48%.

While volume was light, there continued to be large price swings in the secondary space.

ON Semiconductor Corp.’s 0% convertible notes due 2027 and Square Inc.’s 0% convertible notes due 2026 were making large gains on an outright and dollar-neutral basis following their earnings reports.

ON Semiconductor’s earnings

ON Semiconductor’s 0% convertible notes due 2027 were making large gains on an outright and dollar-neutral basis as stock surged following better-than-expected second-quarter earnings reports.

The 0% convertible notes rose more than 6 points outright.

The notes were changing hands at 112.375 versus a stock price of $43.99 early in the session. They continued to gain on an outright basis and were changing hands at 113 in the late afternoon.

The 0% notes were up about 0.5 point to 0.75 point dollar-neutral in the late afternoon, a source said.

ON Semiconductor stock traded to a high of $45.18 and a low of $42.29 before closing the day at $43.64, an increase of 11.73%.

Stock surged after the semiconductor supplier beat earning expectations on the top and bottom lines.

The company reported adjusted earnings per share of 63 cents versus analyst expectations for earnings of 49 cents.

Revenue was $1.67 billion versus analyst expectations for revenue of $1.62 billion.

Square’s earnings

Square’s 0% convertible notes due 2026 also made large gains on an outright and dollar-neutral basis following its earnings report.

The 0% notes rose more than 7 points outright with stock up more than 10%.

They were changing hands at 122.5 in the late afternoon.

The notes gained 0.75 to 1 point dollar-neutral, a source said.

Square stock traded to a low of $247.01 and a high of $280.88 before closing the day at $272.38, an increase of 10.16%.

Stock skyrocketed after Square released its second-quarter earnings report and announced the acquisition of Australian fintech company Afterpay.

While Square handily beat expectations on the top line, it missed bottom line estimates.

Square reported earnings per share of 66 cents versus analyst expectations for earnings of 30 cents.

However, revenue was $4.68 billion versus analyst expectations for revenue of $5.03 billion.

However, Square’s acquisition of Afterpay was hailed by analysts.

Square announced alongside its earnings report, which was released several days early, that it was acquiring Australian buy-now, pay-later platform Afterpay in an all-stock deal valued at $29 billion.

Afterpay shareholders will receive 0.375 shares of Square for each share owned, which values the shares at A$126.21.

Afterpay stock closed Monday at A$114.80; stock closed last Friday at A$96.66.

The move was approved by analysts who saw it as an opportunity for Square to increase its competitive edge.

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