Convertibles secondary prepositions for Fed; Zendesk buyout trades continue; DISH up

By Abigail W. Adams

Portland, Me., Sept. 21 – It was an active day in the convertibles secondary space on Wednesday with markets volatile surrounding the Federal Open Market Committee’s rate hike decision and Federal Reserve chair Jerome Powell’s press conference.

It was a calm morning with equity indexes in the green and Treasuries stable; however, markets saw outsized swings late in the session as it digested a new Federal Fund target range of 4.25% to 4.5% by December.

Equity indexes spiked higher during Powell’s press conference but the rally was short lived with heavy selling pushing indexes deep into negative territory by the close.

The Dow Jones industrial average closed Wednesday down 522 points, or 1.7%, the S&P 500 index closed down 1.71%, the Nasdaq Composite index closed down 1.79% and the Russell 2000 index closed down 1.42%.

Sentiment heading into the rate decision was that the market had been too bearish and there was a rush to cover shorts, a source said.

However, sentiment shifted as the market digested Powell’s hawkish comments.

There was larger-than-expected volume in the convertibles secondary space with the majority of activity occurring prior to the Federal Reserve announcement.

There was $471 million in reported volume by the market close with active buyers in the space and short-duration notes in demand.

“It’s unusual,” a source said. “Usually people wait.”

Zendesk Inc.’s 0.625% convertible notes due 2025 remained one of the top traded issues in the space following shareholder approval of its sale with the notes still offering some upside on their takeout.

Coupa Software Inc.’s 0.125% convertible notes due 2025 saw heavy volume although with little movement in price.

Sarepta Therapeutics Inc.’s 1.25% convertible notes due 2027 were also unchanged in active trade.

DISH Network Corp.’s convertible notes (B2/CCC) were among Wednesday’s volume movers with the notes improving.

Zendesk in focus

Zendesk’s 0.625% convertible notes due 2025 remained one of the top traded issues in the secondary space on Wednesday following shareholder approval of the company’s sale.

The 0.625% convertible notes continued to trade on a 98-handle.

They were changing hands just shy of 98.5 heading into the market close, according to a market source.

There was $11 million in reported volume.

Zendesk’s stock closed Wednesday at $76.48, a decrease of 0.052%.

The 0.625% notes have been active since Tuesday when shareholders voted to approve the company’s sale to an investor group led by private equity firms Permira and Hellman & Friedman LLC for $77.50 a share.

The notes will be taken out at par with the transaction expected to close in the fourth quarter.

Coupa active

Coupa’s 0.125% convertible notes due 2025 saw heavy volume but little movement in price during Wednesday’s session.

The 0.125% notes were seen at 87.5 in the late afternoon with the yield 5%, according to a market source.

There was $9 million in reported volume.

Coupa’s stock traded to a low of $64.80 and a high of $68.22 before closing the day at $65.23, a decrease of 2.12%.

DISH improves

DISH’s convertible bonds improved during Wednesday’s session.

DISH’s 3.375% convertible notes due 2026 rose 1.5 points outright.

They were changing hands just shy of 72.5 in the late afternoon.

The yield was 12½%.

There was $9 million in reported volume.

DISH’s 0% convertible notes climbed back from a recent low with the notes closing Wednesday up 0.5 point outright.

The notes returned to a 70-handle and were trading at 70.375 heading into the close after opening the day on a 69-handle.

There was $7 million in reported volume.

DISH’s stock traded to a low of $15.98 and a high of $16.75 before closing the day at $16.01, a decrease of 0.93%.

While improved on Wednesday, DISH’s 0% convertible notes were under pressure early in the week.

The notes retested an all-time low on Tuesday when they broke down to a 69-handle.

Sarepta unchanged

Sarepta Therapeutics’ 1.25% convertible notes due 2027 were active but unchanged on Wednesday.

The notes were trading at 105.5 versus a stock price of $113.16 early in the session, according to a market source.

There was $9 million in reported volume.

Activity in the name diminished as the session progressed.

Sarepta’s stock traded to a high of $115.4 and a low of $110.07 before closing the day at $110.14, a decrease of 3.3%.

There may have been some profit-taking in the name ahead of the Fed decision, a source said.

With the coupon low, the convertible notes will not hold if stock goes south.

Mentioned in this article:

Coupa Software Inc. Nasdaq: COUP

DISH Network Corp. Nasdaq: DISH

Sarepta Therapeutics Inc. Nasdaq: SRPT

Zendesk Inc. NYSE: ZEN

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