IG convertibles dominate quiet secondary; Southern Co., Duke weaken; Greenbrier gains

By Abigail W. Adams

Portland, Me., April 10 – The convertibles primary market was dormant on Monday with no deals announced although there is plenty of activity occurring behind the scenes, sources said.

Forecasts for new deal activity were uncertain for the week with earnings season blackouts and continued uncertainty regarding rates dragging new deal activity.

However, the groundwork is being laid for an active pipeline.

“There’s a lot of pitching going on,” a source said.

Meanwhile, it was a quiet start to the week in the convertibles secondary space on Monday with the market flat and volume light.

Equity indexes opened mixed but rallied into the close with Treasuries weak on the heels of Friday’s U.S. nonfarm payrolls report, which came in largely as expected.

The Dow Jones industrial average closed Monday up 101 points, or 0.30%, the S&P 500 index closed up 0.10%, the Nasdaq Composite index closed down 0.03% and the Russell 2000 index closed up 1.02%.

Trading activity was light with European markets closed for Easter Monday.

There was $235 million on the tape about one hour before the market close with investment-grade convertible bonds continuing to dominate the tape.

Southern Co.’s 3.875% convertible notes due 2025 (Baa2/BBB) and Duke Energy Corp.’s 4.125% convertible notes due 2026 (Baa2/BBB) were the top traders of Monday’s session with the notes weaker outright but moving in line on a dollar-neutral, or hedged, basis.

While the broader market was largely flat, Greenbrier Cos., Inc.’s 2.875% convertible notes due 2028 made gains in light trade on the heels of a better-than-expected earnings report and upbeat guidance.

Investment-grade trades

It was a sleepy start to the week in the convertibles secondary space with Southern Co.’s 3.875% convertible notes due 2025 and Duke Energy’s 4.125% convertible notes due 2026 continuing to dominate the tape.

Southern Co.’s 3.875% convertible notes were slightly weaker outright although the notes were moving in line with the weakness in Treasuries and stock, a source said.

The notes were off about 0.375 point outright.

They were changing hands at 102.5 early in the session and 102.625 in the late afternoon, sources said.

There was $45 million in reported volume.

Southern Co.’s stock traded to a high of $72.05 and a low of $71.14 before closing at $72.04, a decrease of 0.37%.

Duke Energy’s 4.125% convertible notes due 2026 were down about 0.25 point outright and moving in line, a source said.

The notes were trading in the 101.75 to 102 context throughout the session.

There was $15 million in reported volume.

Duke Energy’s stock traded to a high of $99.41 and a low of $98.06 before closing at $99.13, down 0.61%.

Greenbrier gains

Greenbrier’s 2.875% convertible notes due 2028 were on the rise in light volume after a better-than-expected earnings report.

The 2.875% notes gained about 1 point outright with stock up 10%.

The notes changed hands at 85.875 during Monday’s session.

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

Greenbrier’s stock traded to a low of $31.90 and a high of $34.14 before closing at $33.27, an increase of 10.13%.

Stock was on the rise after the marine and rail transportation equipment supplier trounced analyst expectations with earnings per share of 99 cents versus analyst expectations for earnings per share of 61 cents.

Revenue was $1.12 billion versus analyst expectations for revenue of $895.5 million.

The company also upped its guidance with revenue now projected to be $3.4 billion to $3.7 billion versus previous guidance of $3.2 billion to $3.6 billion.

Mentioned in this article:

Duke Energy Corp. NYSE: DUK

Greenbrier Cos., Inc. NYSE: GBX

Southern Co. NYSE: SO

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