Morning Commentary: Splunk convertibles expand modestly with shares down after earnings

By Rebecca Melvin

New York, Aug. 22 – The convertible bond market was mostly quiet early Thursday as the dog days of summer continue, but Splunk Inc.’s convertibles were active after the San Francisco-based software company reported earnings.

No new issues were heard to be announced.

Splunk’s A tranche was showing modest expansion of about 0.125 point versus the close, with the stock down sharply in the early going, a New York-based trader said. The Spunk B tranche was not seeing much expansion either, the trader said.

The trader added that the move was not surprising given frothiness that had developed in the valuation of late.

Splunk shares were down $13.41, or 10.4% to $115.06 in late morning trade. The company’s second-quarter earnings per share and revenue beat estimates and the company also raised full-year revenue guidance and announced it is buying out SignalFx for $1.05 billion. Nevertheless, free cash flow figures were disappointing, according to a few analysts.

Otherwise, there were few catalysts for convertibles trading. Equities were mostly lower and financial markets will be focused on comments coming out of the Federal Reserve’s Jackson Hole conference over the next several days.

As for new issuance, “I think PFPT is the last one we’re likely to see until after Labor Day,” the trader said, referring to the new $800 million convertible issued by Proofpoint Inc. that debuted in the secondary market on Wednesday.

That deal did notably well, expanding 2.75 points to 3 points. But despite its success, no other issuers waded into the market in its wake.

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