Palo Alto convertibles see heavy volume; Vail gains; China-based convertibles active

By Abigail W. Adams

Portland, Me., Sept. 24 – Following a flurry of activity the previous session, the convertibles secondary space slowed its pace on Friday as equity markets wavered between gains and losses.

While equity benchmarks launched the day deep in the red, they flirted with positive territory heading into the close before ending the day mixed.

The Dow Jones industrial average closed the day up 33 points, or 0.10%, and the S&P 500 index closed the day up 0.15%.

However, the Nasdaq Composite finished down 0.03% and the Russell 2000 index was off 0.14%.

While the overall market was quiet, Palo Alto Networks Inc.’s convertible notes saw heavy trading volume as a holder switched from the old notes to the new.

Vail Resorts Inc.’s 0% convertibles due 2026 saw some activity with the notes making large gains on an outright and dollar-neutral basis following earnings.

While China-based convertibles were among the most actively traded early, activity in the notes dwindled as the session progressed.

Fears of contagion from China Evergrande Group’s expected collapse and China’s latest regulatory crackdown on cryptocurrency dragged down markets early in the session.

However, those fears diminished as the session progressed.

Palo Alto in focus

Palo Alto’s convertible notes saw heavy volume on Friday, which was attributed to an account repositioning itself.

There was more than $500 million in estimated volume between the two issues, a source said.

While the notes saw heavy volume, there was little movement in price.

Palo Alto’s 0.375% convertible notes due 2025 were changing hands at 167 versus a stock price of $483.16 early in the session.

They continued to trade around 167 in the late afternoon.

The 0.75% convertible notes due 2023 were changing hands at 184 in the late afternoon.

Palo Alto’s stock traded to a low of $480.13 and a high of $490.92 before closing the day at $490.47, an increase of 1.52%.

The activity in the notes was most likely the result of an account swapping out the old notes for the new, a source said.

Vail gains

Vail Resorts’ 0% convertible notes due 2026, an off-the-run issue that rarely trades in volume, saw some action on Friday with the notes making large gains on an outright and dollar-neutral basis.

The 0% convertible notes were up more than 5 points outright as stock jumped 7%.

They were changing hands at 109 heading into the market close.

The notes expanded about 0.5 point dollar-neutral, a source said.

Vail’s stock traded to a low of $323 and a high of $352.38 before closing the day at $351.85, an increase of 7.4%.

Stock jumped after the Colorado-based mountain resort company reported earnings.

Vail Resorts reported a quarterly loss of $3.49 per share versus analyst expectations for a loss of $3.64. Revenue was $204.2 million versus analyst expectations for revenue of $177 million.

China-based convertibles

While activity in the names petered out as the session progressed, China-based convertibles were active early in Friday’s session as investors grappled to understand the implications of China Evergrande Group’s missed interest payments on its bonds and Beijing’s latest regulatory crackdown on cryptocurrency.

iQIYI Inc.’s 4% convertible notes due 2026 were coming in on an outright basis as stock dropped more than 5%.

The 4% notes dropped about 1 point outright.

They were changing hands at 83.375 versus an equity price of $7.93 early in the session, according to a market source.

The yield on the notes was about 11%.

There was about $6 million in reported volume.

iQIYI’s American Depositary Shares traded to a high of $8.35 and a low of $7.81 before closing the day at $7.95, a decrease of 6.03%.

Huazhu Group Ltd.’s 3% convertible notes due 2026 were also active.

The notes were changing hands at 132.375 versus an equity price of $46.75 early in the session.

There was about $4 million in reported volume.

Huazhu’s American Depositary Shares traded to a low of $46.21 and a high of $47.66 before closing the day at $47.13, a decrease of 0.13%.

Mentioned in this article:

Huazhu Group Ltd. Nasdaq: HTHT

iQIYI Inc. Nasdaq: IQ

Palo Alto Networks Inc. NYSE: PANW

Vail Resorts Inc. NYSE: MTN

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