RH convertibles in focus post-earnings; iQIYI notes continue to improve; Citrix active

By Abigail W. Adams

Portland, Me., March 29 – Markets were strong on the final day of the first quarter with equities roaring back from a volatile week.

While the overall market was strong on Friday, the convertible notes of RH, formerly Restoration Hardware, were in focus and expanding on a dollar-neutral, or hedged, basis as its stock tanked following the company’s fourth-quarter earnings report.

Meanwhile, iQIYI Inc.’s 2% convertible notes due 2025 continued to see high-volume activity in the secondary space with the notes continuing to post gains on an outright and dollar-neutral basis.

Citrix Systems Inc.’s 0.5% convertible notes, which mature on April 15, remained volume leaders in the secondary space as they have been for much of the week.

The notes were continuing to trade at parity as they prepare to be taken out.

RH in focus

RH’s three tranches of convertible notes were in focus in the secondary space on Friday as stock tanked following its fourth-quarter earnings report.

While down outright, the notes were expanded dollar-neutral.

The 0% convertible notes maturing on June 15 were pumped up into the earnings report, the source said.

The notes were changing hands around 115 on Thursday. They dropped down to 103 early in Friday’s session.

They were seen changing hands at 101.15 versus a stock price of $104.18 in the late afternoon.

They were expanded about 0.5 point dollar-neutral, a market source said.

The notes begin their averaging period next week and do not have much optionality left to them, a source said.

With more than $39 million on the tape by the late afternoon, the 0% notes due June 15 were the most actively traded in the secondary space.

RH’s 0% convertible notes due 2020 were the least active of the tranches with about $5 million on the tape by the late afternoon. The notes fell about 1.5 point outright.

They were seen changing hands at 110.75 versus an equity price of $105.99.

RH’s 0% convertible notes due 2023 fell about 7 points outright to 87.5 early in Friday’s session.

The notes were seen changing hands at 86.625 versus a stock price of $105.88 later in the afternoon.

More than $9.5 million was on the tape by the late afternoon.

Both the convertible notes due 2020 and 2023 were improved by about 0.25 point dollar-neutral, sources said.

RH stock traded to a high of $114.50 and a low of $102.19 before closing the day at $103.14, a decrease of 21.82%.

While the home furnishings company beat on the bottom line in its fourth-quarter earnings report, it missed on the top.

RH reported non-GAAP earnings per share of $3.00 versus analyst expectations for earnings per share of $2.85.

Revenue was $671.8 million versus analyst expectations for revenue of $687 million.

However, the steep decline in RH stock was attributed to it slashing its outlook for the current fiscal year.

RH reduced its forecast for earnings per share to $8.41 to $9.08 as opposed to its earlier projection of $9.30 to $10.70, The Street reported.

With a dismal outlook for high-end housing, the home furnishing store was expecting a decrease in revenue.

iQIYI improves

iQIYI’s 2% convertible notes due 2025 continued to improve in high-volume activity in the secondary space.

The notes gained more than 1.5 points outright to trade north of 103 early in Friday’s session.

They rose to 104 by the late afternoon.

The notes were up another 0.5 point dollar-neutral, a market source said.

The notes remained among the most actively traded issues in the secondary space with more than $35 million on the tape by the late afternoon.

Underwriters recently exercised the greenshoe on the 2% notes in full, lifting the overall size of the deal to $1.2 billion.

Due to the size of the offering, the notes will remain active in the secondary space for some time, a market source said.

iQIYI’s stock closed Friday at $23.92, an increase of 5.28%.

Citrix active

Citrix’s soon-to-mature convertible notes remained major volume movers in the secondary space with the notes dropped from the Thomson Reuters convertible index.

The 0.5% notes due April 15 continued to trade just above parity on Friday.

They were changing hands at 141.67 versus an equity price of $99.59, according to a market source.

More than $21 million of the bonds were on the tape by the late afternoon.

Citrix stock closed Friday at $99.66, an increase of 0.21%.

Friday marked the last day the 0.5% convertible notes would be in the Thomson Reuters convertible index.

While the 0.5% notes have been active, the notes were end of the life trades and not that exciting, a market source said.

Mentioned in this article:

Citrix Systems Inc. Nasdaq: CTXS

iQIYI Inc. Nasdaq: IQ

RH NYSE: RH

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.