Convertibles market holds as equities drop; Palo Alto, Etsy active; RingCentral gains

By Abigail W. Adams

Portland, Me., March 27 – The convertibles secondary space was holding onto its gains from the previous sessions on Friday despite a drop in equities.

Equities ended their rally on Friday with the Dow Jones industrial average closing the day down 4.06%, the S&P 500 index closing down 3.37% and the Nasdaq composite down 3.79%.

However, credit markets continued to improve with high-yield spreads tightening another 20 bps to 50 bps, a market source said.

“It’s still early, but the solid days in credit are giving people a better feel. The tone is definitely better,” a market source said.

Trading activity remained light with $55 million in reported volume about one hour into the session and $350 million in the late afternoon.

Palo Alto Networks Inc.’s 0.75% convertible notes due 2023 were active during Friday’s session with the notes down outright but up slightly on a dollar-neutral basis.

Etsy Inc.’s 0.125% convertible notes due 2026 were also trading down outright but expanding dollar-neutral as stock traded off.

RingCentral Inc.’s 0% convertible notes due 2025 were making gains on an outright and dollar-neutral basis as stock soared during Friday’s session.

While trading volume in the convertible notes was light, JOYY Inc. became the latest company to announce a buyback.

Palo Alto expands

Palo Alto’s 0.75% convertible notes due 2023 were active on Friday with the notes down outright but up dollar-neutral as stock gave back some of its gains from the previous session.

The 0.75% notes were changing hands at 95.75 in the late afternoon versus a stock price of $161.39.

While the notes were down about 0.5 point outright, they saw a minor dollar-neutral expansion, a market source said.

“They’re holding up well,” the source said.

While the notes were among the most actively traded during Friday’s session, volume was light with a little more than $11 million on the tape by the late afternoon.

Palo Alto stock traded to a low of $160.26 and a high of 165.28 before closing the day at $162.54, a decrease of 2.89%.

Etsy expands

Etsy’s 0.125% convertible notes due 2026 also saw a fresh round of trading activity on Friday with the notes down outright but up dollar-neutral as stock dropped more than 7%.

The 0.125% notes were down about 1 point outright to 81.75 in the late afternoon.

However, they expanded about 0.75 point dollar-neutral, a market source said.

While the notes are unrated, the e-commerce company for vintage, handmade crafts is a relatively strong credit, the source said.

The notes saw about $11 million in reported volume heading into the late afternoon.

Etsy stock was traded to a low of $38.07 and a high of $40.44 before closing the day at $38.67, a decrease of 7.66%.

RingCentral gains

RingCentral’s 0% convertible notes due 2025 were making large gains on an outright and dollar-neutral basis as stock staged a massive rebound, recouping its losses from the past three weeks.

The 0% convertible notes rose 3 points outright to 96.5 late Friday afternoon, according to a market source.

They saw a large dollar-neutral expansion as stock skyrocketed more than 16% in intraday trading.

RingCentral stock traded to a low of $207.53 and a high of $252.85 before closing Friday at $238.97, an increase of 10.35%.

While the sell-off over the past few weeks pushed RingCentral’s 0% convertible notes as low as 81 less than three weeks after the notes priced at par, stock has recouped nearly all of its losses since the coronavirus induced volatility rocked the markets.

RingCentral priced a $1 billion issue of the 0% convertible notes on Feb. 27 with a stock reference price of $240.28.

JOYY’s buyback

JOYY, formerly known as YY Inc., became the latest company to launch a buyback of its convertible notes.

The Guangzhou, China-based social media company announced on Thursday plans to purchase up to $200 million of its 0.75% convertible notes due 2025 and 1.375% convertible notes due 2026 over the next 12 months with the size and terms of the buyback subject to adjustment, Prospect News reported.

While trading activity was light, JOYY’s 1.375% convertible notes due 2026 were changing hands at 88.875 early Friday with about $3 million in reported volume.

The 0.75% convertible notes due 2025 traded up a little more than 1 point outright to 91.25 with three $1 million plus prints on the tape.

JOYY stock traded as low as $51.81 and as high as $54.61 before closing the day at $53.97, a decrease of 2.09%.

JOYY priced a $575 million tranche of the 0.75% notes and a $575 million tranche of the 1.375% notes in June 2019.

Microchip Technology Inc. and Dycom Industries Inc. also announced privately negotiated exchanges for their convertible notes over the past week.

Mentioned in this article:

Etsy Inc. Nasdaq: ETSY

JOYY Inc. Nasdaq: YY

Palo Alto Networks Inc. NYSE: PANW

RingCentral Inc. NYSE: RNG

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